What is Gift Aid and How Does it Work?

Gift aid is a UK tax incentive scheme that allows registered charities to claim back an extra 25p for every £1 of eligible donations made by individuals to them. In some cases, the person making the donation can also claim a tax rebate on their tax return.

Here’s how gift aid works, how the charity benefits and which individuals are entitled to a tax rebate.

Gift Aid Rules

When you make a donation to a registered charity, you may see a box on the form asking if you want to sign up for gift aid. By signing this box and agreeing to the rules of gift aid, it means that the charity will able to reclaim an additional 25p of tax from HMRC for every £1 donation given to them. In other words, if you donate £100, the charity will be claim a further £25 back from HMRC in the form of a tax rebate, making your grossed up donation £125 in total. The charity receives 20% tax rebate (£25/£125), the basic rate of tax.

If the individual is a higher rate taxpayer (40%) or above, then the individual can claim a tax rebate. So if they donate £100 to charity – they claim gift aid to make the donation £125 and the individual can personally claim back £25.00 (£125 x 40%-20%). Where the individual pays tax at 45%, they can claim tax back of £31.25 (£125 x 45%-20%).

Under the rules, the individual making the donation must have paid sufficient income tax and/or capital gains tax to cover the grossed up amount of the donation made, otherwise, the individual will be liable for repaying HMRC for the amount given to the charity.

You’ll have to complete one gift aid form for each charity you donate to, although there are companies that now automate the process saving you the time and hassle of completing forms when you donate online.

Do I Have to Declare Gift Aid On My Tax Return?

If you are registered for self-assessment then you can declare gift aid on your tax return and then you’ll be able claim the additional tax rebate when your tax is calculated.

You’ll need to include your donations in the main section of your tax return in the Charitable Giving section, using boxes 5 to 8.

how to declare gift aid on your tax return
Declaring Gift Aid On Your Tax Return

In Box 8, you’ll notice that you can claim tax relief on donations for the current tax year that way you get tax relief sooner rather than later. Although you cannot do this if you are late with your following years’ tax return, in these cases you’ll need to declare your charitable donations on the tax return for the tax year you made the donation.

How long should I keep Gift Aid declarations?

You normally should keep your gift aid records for at least 22 months from the end of the tax year they’re for. If you are registered for self-assessment and claim your tax relief when you fill in your tax return, then it’s generally recommended that you keep records alongside your other information.

Do Gift Aid Declarations Need to be Signed?

Yes, you must make sure you sign your gift aid declaration. That way the Charity has the right paperwork in place to make their claim from HMRC. It is also a declaration that you have paid sufficient income tax and/or capital gains tax to cover the grossed-up amount of the donation made.

Can I Use Gift Aid If I Don’t Work?

Yes you can sign for gift aid, however if you have not paid sufficient income tax during the tax year you make the donation you could be liable to pay the gift aid tax relief amount that HMRC pay to the charity.

It’s up to you, not the charity, to check you have paid sufficient tax.

How Does Gift Aid Affect My Tax Code?

If you are not registered for self-assessment but are a higher rate tax payer (40%), then you can ask HMRC to change your tax code so that you get tax relief on your donations. Call HMRC on 0300 200 3300 to discuss changing your tax code.

Can I Claim Gift Aid Retrospectively?

If you need to claim tax relief on charitable donations in previous tax years, then you can make a claim from HMRC going back 4 years after the end of the tax year you are claiming for.

So if you are completing your tax return for 2019/2020 for the tax year ending 5 April 2020, then you can claim back to the tax year 2015/2016 ending 5 April 2016.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.