Written by Ali Jaw ACCA FMAAT
Managing Partner AMA
This is a key aspect for Charities and we at AMA work closely with Charities via our Practising License from the AAT.
We deliver services for Charities in Worcestershire & the Midlands.
We are open to possible National working too using modern synergies and the power of virtual working together.
The first thing to consider as a Charity is What Can be Gift Aided?
A variety of fundraising sources qualify for Gift Aid, although in all cases the funds must have been received from individual UK taxpayers making suitable declarations allowing the reclaim.
Common sources are as follows:
● Monetary donations, any size
● Events with donations only
● Volunteer expenses
● Sales of goods on behalf of an individual
So, the next thing is who are Eligible and Acceptable Donors?
Gift Aid Donors must:
● Be individual UK taxpayers (Donations from companies, for example, do not qualify).
● Pay enough Income Tax or Capital Gains Tax to cover all their donations to charity
● Have made a Gift Aid declaration
The next stage once it is decided that the funds can be Gift Aided is to compile & complete the Gift Aid Declarations Forms
The form needs to include the following information:
● Name of the charity.
● Name of the donor (minimum requirement first initial and surname).
● Donor’s home address (minimum requirement house number, name or postcode).
You may question within your Charity: How long does the declaration last for?
The declaration wording normally covers present, future and past donations. This can be back-claimed for up to four years.
So now we move on to explain how Tax relief for the donor & the charity works…..
A donor who is a basic rate taxpayer (20%) will receive no further tax relief as a result of making a donation. However, a donor who is a higher (40%) / or additional rate (45% and above) taxpayer will be able to claim tax relief on the difference between the higher/additional rate tax and basic rate on the grossed-up donation.
Let’s look at this special scenario for Higher Rate rate taxpayers now…..
|Charity claims||Individual can claim|
● An individual taxpayer donates £100, the charity can Reclaim an additional £25, giving a total donation of £125
● A higher rate 40% taxpayer, the individual can personally reclaim £25 …..as a 40% taxpayer (40%-20% x £125). Means effectively for a £100 donation to a charity after claiming tax relief a 40% taxpayer actually donates £75.
● Where the taxpayer is a 45% taxpayer, the individual can personally reclaim £31.50 (45%-20% x £125) . Means effectively for a £100 donation to a charity after claiming tax relief a 45% taxpayer actually donates £68.50
An important thing to look out for is the GASDS and how it could apply to you on smaller donations of £20 or under.
If you’re a charity or charities and community amateur sports club (CASC) you can claim top-up payments on small donations of £20 or less under the Gift Aid Small Donations Scheme (GASDS).
From 6 April 2017, you can claim on donations made using contactless technology, such as a contactless credit or debit card.
Before 6 April 2017, you could only claim top-up payments on small cash donations. Cash donations can be in coins or notes of any currency that have been collected and banked in the UK.
You don’t need to know the identity of the donors or collect Gift Aid Declaration Forms for this scheme.
Check if your charity or CASC can claim top-up payments
To claim top-up payments for donations collected from 6 April 2017, you must:
● have claimed Gift Aid in the same tax year as you want to claim a top-up payment.
● not have incurred a penalty on a Gift Aid or Gif
To claim top-up payments for donations collected before 6 April 2017, you must:
● have claimed Gift Aid in the same tax year as you want to claim a GASDS top-up payment
● not have incurred a penalty on a Gift Aid or GASDS claim in this or the last tax year
● have existed for at least 2 complete tax years, unless your charity or CASC has recently merged with another
You can’t claim for:
● donations that come with a valid Gift Aid declaration
● membership fees
● a £20 portion of a larger gift
How GASDS claims are worked out
GASDS claims are worked out in the same way as Gift Aid.
If the Basic Rate of Income Tax is 20%, you can claim a GASDS top-up payment of £2,000 on £8,000 worth of small donations.
Example, if the donor gives £20, you can claim a GASDS top-up payment of £5.
Maximum top-up payments from 6 April 2017
From 6 April 2017, the maximum amount of small donation top-up payments the lower of:
● 10 times the amount you receive in Gift Aid donations.
This is known as the matching rule:
For example, if you receive £100 in Gift Aid donations, you can claim top-up payments on £1,000 worth of small donations under the matching rule. This works out as £250 in top-up payments
(£1000 x 25%)
If your charity is looking for guidance on some of the issues raised in this blog around Gift Aid or the Gift Aid Small Donations Scheme…….
Or simply looking for partnership with local Accountants here in Worcestershire & The Midlands, simply get in contact with AMA
You and Your Charity, are most welcome for a free initial consultation to see how we can help you.