Gift Aid offers a simple way to increase the value of your gift to charity by allowing the charity to reclaim the tax on your gift.
How Gift Aid works
Charities take your donation (which is money you’ve already paid tax on), and then reclaim tax on its ‘gross’ equivalent (its value before tax was deducted) at the basic rate of 22 per cent.
In practice, this means that if you give £10 to charity using Gift Aid, that gift is worth £12.82 to the charity. This is because 22 per cent of £12.82 is £2.82 – your £10 being the difference.
The Gift Aid scheme is only for monetary gifts and there are rules limiting the value of benefits you can receive in return.
Who Can Use Gift Aid?
You can use Gift Aid if the amount of tax you have paid in any tax year (6 April one year to 5 April the next) is at least equal to the amount the charity is reclaiming on your behalf. You can calculate the amount of tax the charity will reclaim by multiplying the amount you give by 22/78.
So if, for example, you give £100 to a charity in a particular tax year, they will claim back 100 x 22/78 = £28.20. You need to have paid at least this amount of tax during the same tax year to be able to donate using Gift Aid.
Higher Rate Taxpayers
If you’re a higher rate taxpayer, you can claim the difference between the higher rate of tax at 40 per cent and the basic rate of tax at 22 per cent on the total value to the charity of your donation (the ‘gross donation’).
So, using the example above, you can reclaim higher rate relief of £23.08 (18 per cent of your gross donation of £128.20).
You make this claim on your Self Assessment tax return.
If you do not pay tax, you should not use Gift Aid.
How to make a donation using Gift Aid
When you make a donation to charity, they will normally ask you to consider making your donation using Gift Aid. If you agree, they will give you a simple form to complete declaring that you wish to make donations under Gift Aid.
You should complete a separate declaration form for each charity you wish to donate to, but one form can cover every gift made to the same charity.