Paul Butterworth writes
LET’S fast forward to the new Chancellor’s first Budget speech. Amongst the inevitable headline-intended spending increases, below the radar tax rises and jokes about his or her favourite tipple, there is a surprise announcement for the charity sector… a half a billion-pound HMRC funding pot!
The good news is it’s open to all charities regardless of size and purpose, immediately available and, at lower levels of funding, requires only minimal paperwork. The only requirement is that the charity receives donations from individuals. Great!
Ok, so before you get too excited, the above announcement is highly unlikely (sorry). But that is in effect what HMRC are offering with £560m of Gift Aid going unclaimed each year. So, what exactly is Gift Aid and how, if you’re not already, can your charity go about claiming it?
What is Gift Aid and how does it work?
Gift Aid is a government-operated scheme that allows registered charities or community amateur sports clubs (CASCs) to claim back 25p for every £1 donation made to that charity. The charity does this by reclaiming from HMRC the basic rate of income tax the individual has paid on the donation. Let’s imagine your donor earns £125 gross pay, at a basic rate of 20% she receives £100 and £25 is paid to HMRC. She then donates that £100 to you (a charity) who can reclaim the £25 tax she paid.
Key to this process is that the donor must have paid an equivalent amount of income tax or capital gains tax and provide the charity with a Gift Aid declaration. Gift Aid declarations require the donor’s name and address, identification of the charity, identification of the gift(s) to which the declaration should apply, a tax to cover statement and an HMRC model declaration. An example of a Gift Aid declaration is below.
4 years and the GASDS
Despite the significant levels of Gift Aid going unclaimed, in 2018-19 over £1.3bn of Gift Aid was claimed and, in fairness to HMRC, the scheme has some features to support charities to maximise this tax relief.
The first is that Gift Aid can be claimed on any eligible donations within the past 4 years. So if you haven’t claimed Gift Aid to date, it could well be worth starting! Secondly, HMRC operates the Gift Aid small donation scheme (GASDS) where you do not need a Gift Aid declaration to claim. This applies to cash donations of £30 or less, as well as contactless card donations of £30 or less.
Sounds good, let’s make this happen!
I recently worked with a charity founder who, whilst she understood Gift Aid, didn’t know how to physically make the claim, and I don’t think she’s alone. The simplest way to claim Gift Aid is online but there are a couple of steps you will need to go through to enable this. Firstly, you will need to register with HMRC as a charity for tax purposes. Once you’ve activated your Charities Online account, you can start claiming repayment via the ‘services you can use’ page. You will need to upload a spreadsheet of your donations or use eligible software.
A Gift Aid donations schedule spreadsheet can be found at https://www.gov.uk/government/publications/gift-aid-schedule-spreadsheets-to-claim-back-tax-on-donations
Paul is the Director of Strategic Financial Management at Macmillan Cancer Support and Founder of Keystone Accounts (a social enterprise that helps smaller charity and community organisations with their accounts).
Please note that whilst every effort has been made to ensure the accuracy of this article it is intended for general information only and does not constitute specific advice. You should always obtain professional advice regarding the individual circumstances of your charity or CASC.