Definition
Gift Aid is a UK government scheme allowing individuals and companies to donate money to charities and enabling these charities to reclaim the basic rate of tax on the donation’s value, boosting the donation by 25% at no extra cost to the donor. The taxpayer must make a gift aid declaration to the charity, indicating that the payment is to be treated as Gift Aid.
Examples
- Individual Donation: Jane donates £100 to a registered UK charity and makes a Gift Aid declaration. The charity can reclaim £25 from the government, making the total donation £125.
- Corporate Donation: XYZ Ltd. donates £1,000 to a charitable organization. With the Gift Aid scheme, the charity claims an additional £250 from HMRC, turning the contribution into £1,250.
- Different Types of Gifts: Beyond cash donations, donors can also gift land, stocks, shares, or plant and machinery to charities and gain tax relief under similar conditions.
Frequently Asked Questions
Q: How do I make a Gift Aid declaration? A: A Gift Aid declaration is a simple statement whereby the donor confirms that they want their donation to be treated as a Gift Aid donation. This can be done through a form provided by the charity, typically during or after the donation process.
Q: Are there any limits to the amount that can be donated under Gift Aid? A: There is no minimum or maximum donation amount for Gift Aid. However, the total donations claimed under Gift Aid must not exceed the amount of income tax and/or capital gains tax the donor has paid in that tax year.
Q: Does Gift Aid only apply to cash donations? A: While Gift Aid primarily applies to cash donations, equivalent arrangements exist for other types of gifts such as land, stocks, shares, and certain kinds of machinery.
Q: Can foreign donors take advantage of Gift Aid? A: No, Gift Aid is available only to UK taxpayers or those who pay enough UK tax to cover the reclaimed amount.
Q: Is there a deadline for charities to reclaim Gift Aid? A: Charities can reclaim Gift Aid up to four years after the end of the financial period in which the donation was received.
Q: How does Gift Aid affect higher or additional rate taxpayers? A: Higher or additional rate taxpayers can claim the difference between the higher/additional rate of tax and the basic rate on their donations. They do this through their tax return, thus reducing their own tax bill.
Related Terms
1. Deed of Covenant: An earlier method replaced by Gift Aid in April 2000, under which regular, fixed-amount charitable donations could be made with tax relief.
2. Charitable Donations: Contributions made by individuals or entities to registered charity organizations, which can sometimes receive tax benefits or incentives.
3. UK Taxpayer: An individual or entity liable to pay taxes within the UK jurisdiction, which is necessary for eligibility for Gift Aid.
4. Income Tax Relief: Potential reduction in income tax liability offered to donors under various schemes, including Gift Aid for eligible donations.
Online References
Suggested Books for Further Studies
- “Taxation and Social Policy” by Patricia Melton
- “Charity Law & Social Policy: National and International Perspectives on the Functions of the Law Relating to Charities” by Kerry O’Halloran
- “Charity Governance: The New Agenda” by Dorothea Skillern
Accounting Basics: “Gift Aid” Fundamentals Quiz
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