Gift Aid Explained

Gift Aid is a UK tax incentive which lets charities reclaim the basic-rate tax on donations from UK taxpayers, adding 25p to every £1 given at no extra cost to the donor – but only if the donor has paid enough Income Tax or Capital Gains Tax to cover the amount the charity reclaims.

The basic mechanism of Gift Aid is that the donation is treated as being made after the deduction of basic-rate tax. The charity, or a community amateur sports club (CASC), can then reclaim the equivalent amount of tax from HMRC, if the gift meets the Gift Aid conditions. According to GOV.UK, the charity gets an extra 25p for every £1 donated under Gift Aid. It must have an HMRC charity reference number to claim.

As well as being a UK taxpayer, the donor must have paid enough tax in the tax year in which the donation is made (6 April to 5 April) to cover what the charity claims. In practice, donations qualify as long as they are not more than four times the tax paid in that year. To qualify, the donor signs a Gift Aid declaration saying they want the charity to reclaim the tax. A separate declaration is needed for each charity, and it can cover current and future donations and those made in the last four years.

If a donor's circumstances change and they stop paying enough tax, they must tell the charities they support. If a charity gets back more tax than the donor has paid, HMRC may ask the donor to pay the difference.

What does not qualify

Charities can claim Gift Aid on most donations, but some payments do not qualify, including:

• Payments for goods and services, such as admission to a concert or a fee for a sponsored challenge
• Raffle and lottery tickets, which HMRC treats as payment for the chance to win rather than a gift
• Donations of money from a company, which follow different rules
• Gifts made on behalf of someone else, and "minimum donations" where there is no choice about paying
• Gifts made with charity vouchers or charity cheques

A thank-you from the charity can also affect Gift Aid. If the donor, or someone connected to them, gets a benefit worth more than the limits HMRC sets, the donation does not qualify. For a donation up to £100 the benefit can be worth at most 25% of the gift; above that, 25% of the first £100 plus 5% of the rest, up to a total benefit of £2,500. A newsletter about the charity's work or a simple plaque does not count as a benefit. Membership subscriptions can qualify only when they pay for membership alone, without personal use of the charity's facilities or services.

Higher-rate taxpayers

Higher-rate and additional-rate taxpayers can claim back the difference between the tax they paid on the donation and what the charity got back. This is done through a Self Assessment tax return or by asking HMRC to amend their tax code, and the same applies in Scotland. GOV.UK gives the example of a £100 donation that becomes £125 with Gift Aid: a 40% taxpayer can personally claim back £25.

When making a donation, make sure the tax you have paid is high enough to cover the tax the charity can reclaim, and that the donation is a genuine gift rather than a payment for goods, tickets or events. Gift Aid cannot be added to donations made through Payroll Giving, which already come out of pay before Income Tax. The vast majority of cases are straightforward, as long as the donor follows HMRC guidelines and checks GOV.UK for any specific circumstances.