What is Gift Aid and how does it benefit both the charity and me?

Full answer

Gift Aid is a tax relief scheme that boosts the value of charitable donations made by UK taxpayers, at no direct cost to the donor beyond simply declaring their eligibility. When a taxpayer makes a donation to a registered charity or Community Amateur Sports Club and completes a simple Gift Aid declaration, confirming they are a UK taxpayer and have paid at least as much Income Tax or Capital Gains Tax in that tax year as the charity will reclaim, the charity can then claim back the basic rate of tax (20%) that was deemed to have already been paid on the donation from HMRC, which works out as an extra 25p for every £1 donated, added on top of the donor's own contribution at no further cost to them. For basic-rate taxpayers, this is where the tax benefit of Gift Aid ends -- the extra money goes entirely to the charity. However, higher-rate (40%) and additional-rate (45%) taxpayers can claim back the difference between their own higher tax rate and the basic rate that the charity has already reclaimed, done either through their Self Assessment tax return or by asking HMRC to adjust their tax code, effectively reducing the donor's own personal tax bill as well as boosting the charity's income. This means a £100 donation from a higher-rate taxpayer costs the charity's benefit at £125 (after the charity's Gift Aid claim), but the higher-rate donor can then personally reclaim a further £25 (20% of the gross £125 donation) for themselves, reducing their own net cost of the donation to £75. It is important that donors only tick the Gift Aid box if they have genuinely paid enough UK tax to cover the reclaim, since if they have not, HMRC can require them to personally repay the difference.

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