This guide contains useful information on Gift Aid and reminds higher rate returnpayers that they can claim additional tax relief when they have made gift-aided contributions to Christian Aid or other charities.
Gift Aid BasicsHigher rate tax
If you earn £1,000 in salary, and are taxed at the basic rate of 20%, you receive £800 net pay (ignoring National Insurance). The aim of gift aid is that if you give £800 to a charity, the government will make it back up to the £1,000 you earned - giving to the charity all the tax paid on that part of your earnings. To get from the net donation of £800 to the gross of £1,000 we add 25%.
A higher rate tax payer (40%) earning £1,000 will receive only £600 pay. Again assume an £800 donation to charity. £200 is added through gift aid as in the basic rate tax example.
The tax payer can then reclaim further relief through the tax return:
• Relief at 20% has already been granted & paid to the charity - so the gross contribution is £1,000
• Another 20% can be claimed through tax return - £1,000 x 20% = £200. £800 donated - £200 higher rate relief = £600 net cost.
If you are considering gifting shares to Christian Aid instead of cash, please ask for our Share Giving Fact Sheet.
• If you complete your own tax return – remember to keep a note of gift aided donations and declare the net amount on your tax return (the net amount is the actual value of the donation made to the charity).
• If you use an accountant for your tax affairs make sure you pass on information about gift aided donations. Some accountants don’t remind people about this.
• Consider what you would like to happen to the extra tax relief you receive. Let’s assume you have made a donation of £1,000 and have made a gift aid declaration. Christian Aid claims £250 from the government, making the donation up to £1,250. You can claim 20% of that £1,250 as higher rate relief – a possible tax saving of £250.
- Some people will need to use the relief they eventually receive to reduce the cost of the donation
- Others will be happy to have parted with £1,000 and will be able to consider giving the £250 to Christian Aid as well. If you do this – then Christian Aid would receive a total of £1,562 from a £1,000 donation.
Gift Aid transitional relief
You may be aware that following the fall in basic rate tax from 22% to 20%, charities are able to claim less Gift Aid from the government. It is anticipated that this will cost Christian Aid well over £500,000 a year in lost Gift Aid. The government has announced that it will compensate charities for 3 years up to April 2011 to ensure no loss during that period. This compensation – or transitional relief – does not affect tax payers and their gift aid claims in any way.