Charitable giving – everyone’s a winner

Most of us have heard of gift aid, if only because charity workers are trained to ask us “would you like to gift aid that?”  The principal benefit explained by those charity workers is that for no additional cost to the donor, the registered charity or Community Amateur Sports Club can claim an additional 20% from HMRC.  A donation of £1,000 therefore enables the charity to reclaim £250 from HMRC, so your donation of £1,000 becomes £1,250 in the hands of the charity. In order for the charity to claim gift aid, you will need to sign a form stating that you have paid sufficient tax in that tax year and that you agree to the gift aid being claimed.  This is important because if the charity gets back more tax than you have paid, HMRC could ask you to pay the difference.

If you are a higher rate taxpayer with liability at 40%, you can claim back the difference between the tax you’ve paid on the amount donated and the amount that the charity has reclaimed.  For your effective donation of £1,250 (£1,000 plus gift aid of £250) this would amount to £250, meaning that the £1,250 donation ultimately enjoyed by the charity has only cost you £750. Furthermore, the way that relief for gift aid donations is calculated reduces your “adjusted net income”. This may restore some of your personal allowance if this has been reduced due to the level of your adjusted net income, or perhaps reduce any high-income child benefit charge that may be due. It is therefore important to record any gift aid donations that you make and remember to give the details to the person preparing your tax return, as they may significantly reduce your tax bill.  If you are a basic rate taxpayer, but your spouse pays at the higher rate, it might be worth planning for them to make the donations in future.

Companies can also claim tax relief for qualifying donations paid to charities, but only to the extent that such donations reduce their chargeable profits to Nil. This means that if the company makes a loss for tax purposes in the year, it will not get any tax relief for donations made.  For corporate donations, there is no tax for the charity to reclaim because a company makes donations out of profits before they are subjected to tax. The company needs to keep a record of the charities or Community Amateur Sports Clubs to which they have made donations. This will enable the person completing the corporation tax return to check if the donations qualify for relief. It is not sufficient for there to be a charitable purpose behind the donation, the recipient needs to be either a registered charity for UK tax purposes or registered with HMRC as a Community Amateur Sports Club.

Wright Vigar has a specialist Charities Team which works closely with our personal and corporate tax consultants. We can offer advice to individuals, companies and charities assisting everyone to benefit from charitable donations.

With offices across Lincolnshire and Nottinghamshire we would be delighted to hear from you. Simply call 0845 880 5678 or email action@wrightvigar.co.uk if you would like more information on the advice and support available from the team at Wight Vigar.