Muras Matters: Gift Aid in the Season of Giving

Gift Aid
In the Season of Giving

As Christmas is only 17 days away, and in the Season of Giving, we have detailed below some of the tax benefits to donating to charity.

Gift Aid enables charities and Community Amateur Sports Clubs (“CASC’s”) to receive additional money from the Government on top of donations by individuals, in recognition of the basic rate of income tax paid by the individuals before making the donation. For example, a cash donation of £100 is worth £125 after the charity has claimed a further £25 from the Government. Furthermore, higher earners can receive further benefits.

What can be claimed by higher earners?

In addition to donations direct to charities, broadly, you can also claim Gift Aid on the following examples through your Self Assessment Tax Return:

1. National Trust or English Heritage memberships,
2. Visits to certain attractions, such as Twycross and Dudley Zoo’s, which include a Gift Aid donation as part of the ticket,
3. Tickets to see community football club matches (where the club is a registered CASC),
4. Goods donated to a charity shop (once the items have been sold by the shop),
5. Purchases at a charity auction.

The list is not exhaustive, but it shows some of the less common items which include Gift Aid. It is important to keep evidence to show the donation in order to justify the Gift Aid claim.

What is the benefit?

In the absence of a donation, an individual with a salary of £45,000 in the 2015/16 tax year has an income tax bill of about £7,400. By making a donation of £2,000, their tax bill is lowered to about £6,900. This means a donation of £2,000 has cost £1,500 after tax relief.

Donations can be particularly valuable depending on your income level. For example, an individual with a salary of £120,000 has an income tax bill of over £41,400. A donation of £2,000 reduces the liability down to about £40,400. Therefore the donation has actually cost £1,000 – half the amount paid. This is because income tax free allowances are gradually withdrawn on individuals with incomes exceeding £100,000, the donation has saved some of the tax free allowance.

However, this benefit is only for higher (40%) and additional (45%) rate income tax payers. However, caution should be exercised as a tax charge can be incurred if the individual has not paid sufficient tax to cover the amount reclaimed by the charity.

If you would like any further information on reducing your tax liability then please contact our Tax Director, Jenny Marks.

To see our other news items please visit our Muras Baker Jones – Blog.