1. How does Gift Aid work?
Only donors who pay UK income tax and/or UK capital gains tax (CGT) should donate under Gift Aid. A donation with a valid Gift Aid declaration is assumed to have been paid net of basic rate income tax which charity can reclaim from HMRC. This is now 20%, so the Gift Aid claim by the Charity would be 25% of the 80% deemed net donation amount.
If the donor is a higher rate taxpayer, they can claim the extra tax relief through a self-assessment tax return or by asking HMRC to amend their tax code.
2. Donations that can be Gift Aided
Gift Aid is available on donations of money from UK income tax and CGT payers. This includes individuals, unincorporated sole traders and partnerships or LLPs, In the latter, each partner is required to provide a declaration for their share.
3. Gift Aid declarations
There are two types of Gift Aid declaration: single donation declarations, for example, ‘please Gift Aid the enclosed donation’; or multiple declarations, for example, ‘please Gift Aid the enclosed donation, all donations make in the previous 5 years and all future donations’.
Declarations can be in writing or verbal and must conform to HMRC’s regulations, which provides model written declarations and a procedure to follow for verbal declarations. Charities are strongly advised to use and follow these.
Charities should retain written Gift Aid declarations and HMRC’s specified evidence of oral declarations for at least 6 years after the last donation to which the declaration relates.
4. Who can claim Gift Aid?
The following entities can make Gift Aid claims: UK community amateur sports clubs (‘CASCs’), UK charities, and charities established in other EU or European Economic Area (EEA) states
5. How to claim Gift Aid
The charity or CASC must first register with HMRC by adding the Gift Aid service to its online account. It can then submit Gift Aid claims in one of three ways:
• direct database claim – from compliant Gift Aid management software to HMRC;
• spreadsheet claim – complete and upload a template spreadsheet from the HMRC website – it can list up to 1,000 donors; or
• paper claim – a paper form (ChR1) ordered from the HMRC charities helpline can list up to 90 donors. Use original forms only.
Claims must list the donor name, home address, donation date and amount. UK addresses must include a postcode. You can aggregate up to £1,000 of donations of £20 or less onto a single claim line and for sponsored events, you can list donations by event participant rather than donor, though individual donations of £500 or more must be included separately.
6. Claim time limits
The time limits depend on the type of claimant. Corporate charities and CASCs can claim in the financial year of the donation or following four financial years. Charitable trusts can claim in the tax year of the donation or following four tax years.
7. Gift Aid inspections
Be aware of the risks of making incorrect or invalid claims. HMRC risk assesses and checks Gift Aid claims either by visiting or asking for supporting evidence. HMRC allows a charity to try to correct the problem, for example seeking a replacement for a lost declaration. For uncorrected problems HMRC establishes a sample error rate by value, then extrapolates this over the entire claim under review – and possibly to all claims in the same year – and in the past four or six years and demands repayment and interest.
Contact Wilson Henry on 0151 264 8888 for more information