Following my latest post about donating to Charity, I’ve had a couple of people asking what Gift Aid is all about. You know, that little tick box which says “Please can you confirm if you’re a UK tax payer”, “Would you like to add Gift Aid?”
Going by what I’ve been hearing, the majority of you think want to add Gift Aid, IF YOU KNEW WHAT IT WAS. And that’s where I step in. Hiya.
So here we go – Tax 101 by Zoe Dubs. In short, Gift Aid allows charities to reclaim tax from your donation. It also allows some tax payers like you or me to claim tax back on any donations you’ve made.
How does that work?
Similar to any other company out there, charities pay tax on income that they earn. In this case, a lot of that income is through donations – therefore they’d need to pay tax on the £10 which you’ve hopefully just donated towards my fundraising for Mind. (hint)
If you, the donor, say YES to Gift Aid – then the charity can reclaim the tax that they paid on the donation. You are literally increasing your donation by a quarter – just by saying yes!
Gift Aid is worth nearly £1 Billion to charities and their donors – good fact from HMRC there.
This is a UK specific thing – charities can only reclaim tax on donations from individuals who pay UK income tax – that’s why a lot of the Gift Aid questions will ask whether you to confirm that you’re a UK taxpayer.
And it’s not just charities getting tax relief either.
Anyone paying tax at the higher rate (i.e. anyone earning over 32K) can claim 20% of the total donation back as tax relief. This effectively means that only basic rate tax is paid on the value of the donation (basic rate is 20% and higher rate is 40%.)
Therefore, if you’re a higher rate tax payer and you donate say £10 – this is actually worth £12.50 to the charity when they reclaim Gift Aid. So you can claim 20% of £12.50 as tax relief when you file your tax return.
To make it easier, a lot of charity sites like JustGiving keep a record of your donations so you can print that out and attach it to your tax return.
So there you go…. Tax 101 – it’s not that bad is it?!
Have you been saying YES to Gift Aid? What are your favourite charities to donate to?
What other Money Monday questions have you got for me?