The Gift Aid scheme is now 25 years old. In its first year charities benefitted with £10 million of tax savings. In 2014/15 the savings were worth nearly £1.2 billion.
The tax savings arise because Gift Aid donations from individuals are deemed to be paid by those individuals net of basic rate income tax. The charity then claims the tax back from HMRC as it is exempt from tax on donations received (subject to the detailed rules for Gift Aid being satisfied).
In addition, higher rate taxpayers can claim tax relief on their Gift Aid donations amounting to 25% of their donations. Additional rate taxpayers effectively receive 31.25% tax relief on their donations.
Given the longevity of the scheme, amendments have been made to its conditions from time to time. In April 2016, the Gift Aid declaration underwent a change. The declaration is the means by which the taxpayer agrees that the donation comes within the scheme and allows the tax reliefs to flow through to the charity and the taxpayer.
HMRC has simplified and shortened the model Gift Aid declaration. However, in doing so it has clarified that if an individual has not paid sufficient tax to cover the tax reclaimable by the charity on the donation, the individual is responsible for paying the difference to HMRC.
Action required by charities
The new style declarations should have been in use from the 6 April 2016. However:
- if an individual has signed an old style declaration form which covers multiple donations, there is no need for that individual to make a new declaration
- if a charity holds stocks of printed materials that were ordered and printed before 21 October 2015, that stock can continue to be used.
A declaration by a donor can alternatively be made verbally or online (eg via a website). Whichever format is used, charities need to ensure the updated format is used.
But some individuals need to revoke their declarations
Individuals who expect to pay little or no tax in 2016/17 need to be aware of the dangers of signing new declarations as well as the effects of having signed declaration forms which cover multiple donations. The standard wording on many declarations state 'I want to Gift Aid my donation of £_____ and any donations I make in the future or have made in the past 4 years'. Note the italicised words. Due to various changes in the personal tax regime in recent years - in particular the increases in the personal allowance and the introduction of a £1,000 savings allowance in 2016/17, there are many more individuals who will not be paying income tax in 2016/17. So, for example, if a non-taxpaying individual makes £80 of donations this tax year, the charity(ies) will claim £20 and the individual has a £20 liability to HMRC. Such individuals need to get in touch with the charities to cancel the Gift Aid declarations. Cancellation will not affect Gift Aid donations already made but any further donations will not qualify.
There are also many higher or additional rate taxpayers who have signed declarations but have not claimed the difference between the rate they pay and basic rate on their donations. It is quite straightforward to do this, either through a Self Assessment tax return or by asking HMRC to amend their tax code.