How can charities benefit from Gift Aid?

Gift Aid is a Government scheme which allows charities and community amateur sports clubs to claim tax relief on donations made to them. If you are a charity, this is an important way to increase the donations you receive. In the April 2023 tax year, 1.6 billion in Gift Aid was paid to charities at the basic rate of Income Tax.

But how do you claim it correctly? Cat Williams, Partner and Head of Charities and Not for Profits at Westcotts explains how this works.

What is Gift Aid and how does it work?

Gift Aid allows charities and community amateur sports clubs (CASC) to claim tax relief on the donations made to them. This means that for every £1 donated, they can claim an extra 25p, at no cost to the donor.

Charities can claim on qualifying donations from individuals that have paid the same amount or more in Income Tax or Capital Gains Tax in that tax year. If you are a charity, there are several things you need in place to claim from HMRC:

• The individual must make a Gift Aid declaration that gives you permission to claim it (you must keep a record of these for six years after the most recent donation you claimed Gift Aid on).
• You must be registered for Gift Aid.
• You must be recognised as a charityor CASC for tax purposes.

Are there any rules on what you can claim Gift Aid on?

The main rule is that is has to be claimed on a paid donation. However, there are several specific criteria for when Gift Aid does also apply. There are special rules for donations through charity membership fees, charity property and sponsored challenges among others.

For example, for charity events like skydives, Gift Aid can only be claimed if participants cover costs themselves. This includes costs for things like travel and accommodation. Otherwise, any sponsorship from anyone connected to the participant is not eligible for Gift Aid.

You cannot claim on donations in several circumstances. This includes donations received from limited companies, made through Payroll Giving, or a payment for goods or services.

Are there any rules on when you can claim?

Your deadline to claim Gift Aid depends on how your charity is set up. You need to claim for a donation within four years of the end of the financial period you received it in. This is the tax year if you’re a trust or your accounting period if your charity is a community amateur sports club (CASC), a Charity Incorporated Organisation (CIO) or a limited company.

Are there any limits to the benefits you can offer to donors?

When you receive a donation, you may wish to give the donor a small thank you. However, this shouldn’t breach the benefit limit, which could stop you claiming Gift Aid on their donation. Literature like newsletters informing donors about your work does not count but items like t-shirts and cuddly toys will. Generally, the benefit’s value is the value to the recipients, not the cost to the charity.

You can claim Gift Aid on the donation if the benefit does not exceed certain limits. Currently, these are 25% of the donation up to £100. If the donation is in excess of £100, then it’s 25% of £100 plus 5% of the donation up to a total benefit of £2,500.

Are there any other ways of claiming?

There is also something which is known as a Small Donations Scheme. This enables charities to claim Gift Aid on small donations of thirty pounds or less without the supporting declarations. This can be particularly useful with claiming Gift Aid on collections. This is only available to charities that claim under the normal Gift Aid rules and can be claimed up to a maximum of ten times your claim i.e. if your total claim was £200, you could claim £2,000.

If you have a question about how Gift Aid works or would like a helping hand, get in touch with Cat via email at cat.williams@westcotts.uk or call 01271 374138.