Gift Aid Scheme

Introduction and Basic Mechanism:

• The Gift Aid scheme, introduced in 1990, enables charities to reclaim the basic rate of Income Tax from HMRC on qualifying donations by UK taxpayers.
• For a basic rate taxpayer, a £100 donation allows the charity to reclaim £25, making the total donation worth £125 to the charity.

Higher and Additional Rate Taxpayers

Additional Tax Relief:

• Higher rate and additional rate taxpayers can claim extra tax relief on the difference between the basic rate and their highest rate of tax.

Example:

• If you donate £5,000 to charity:
• The total value to the charity is £6,250.
• If you pay tax at the higher rate of 40%, you can claim back £1,250 (£6,250 × 20%).
• If you pay tax at the additional rate of 45%, you can claim back £1,562.50 (£6,250 × 25%).

Carrying Back Donations

Carrying Back to Previous Tax Year:

• Taxpayers can opt to carry back charitable donations to the previous tax year.
• This must be requested before or at the same time as completing the self-assessment return for the previous year.

Example:

• If you make a donation in the 2024-25 tax year (ending 5 April 2025), you can carry it back to the 2023-24 tax year.
• This is beneficial if you will not pay higher rate tax in the current year but did in the previous year.

How to Claim:

• Include the carry-back request in your 2023-24 self-assessment tax return, due by 31 January 2025.

Qualifying for Gift Aid

Eligibility:

• Donations must qualify for Gift Aid to claim relief.
• Your donations in both tax years must not exceed four times what you paid in tax in the previous year.

Action Points

1. Understand Your Tax Rate:
2. Determine whether you are a basic rate, higher rate, or additional rate taxpayer to maximise the relief.
3. Keep Records:
4. Maintain accurate records of all charitable donations.
5. Claim Gift Aid:
6. Ensure your donations are Gift Aid eligible by confirming with the charity.
7. Use Carry-Back Option:
8. If beneficial, request to carry back donations to the previous tax year for accelerated tax relief.
9. Submit Self-Assessment on Time:
10. Include your charitable donation claims and any carry-back requests in your self-assessment tax return by the due date (31 January 2025 for the 2023-24 tax year).
11. Consult a Tax Professional:
12. Seek advice if you have complex tax affairs or large charitable donations to ensure all available reliefs are claimed.

Summary

Charitable donations under the Gift Aid scheme can provide significant tax relief for both basic rate and higher rate taxpayers. Understanding how to claim this relief, including the option to carry back donations, can help maximise the financial benefits of charitable giving. Keeping accurate records and timely submission of self-assessment returns are essential to ensure compliance and optimise tax relief.