Tax planning - Gift Aid

Donations made under Gift Aid are of course fantastic for the recipient charity or community amateur sports club (CASC) – but they can also be a useful planning tool for the donor, even generating tax refunds for some taxpayers.

Gift Aid donations work to your advantage in reducing the calculation of your taxable income. This means that a timely gift before 5 April 2023 may help keep income under various key tax thresholds, such as:

• High Income Child Benefit Charge, where clawback starts for income above £50,000
• Abatement of the personal allowance, from £100,000
• The additional/top rate threshold (top rate in Scotland).

Repayment potential

If you pay tax at more than the basic rate, you are entitled to claim tax relief at your top rate of tax on the donation. This means that you get the difference between the basic rate and higher rate tax on the donation. In the year to April 2022, HMRC statistics suggest that approximately £540 million was due in such relief. Many higher rate taxpayers, however, fail to claim the repayment due. 

A repayment claim is made either via the self assessment tax return, or by asking HMRC to amend the tax code. Make sure there is a valid Gift Aid declaration in place for all gifts, and that you record the date, amount of each gift and name of the recipient charity to back up your claim.

Timing is everything

A carry back election can be made, meaning Gift Aid donations are treated as if made in the previous tax year - something which can be of benefit, for example, where income is uneven. Strict time limits and other rules apply here so ensure you consult with your JC adviser.

Top tip: deciding which tax year to use

If you are likely to pay higher or additional/ top rate tax in 2023/24, Gift Aid donations in that year should have the potential for a larger repayment. If you are making any substantial donations, and you have discretion over timing, consider whether a donation in 2023/24 is preferable to one in 2022/23.

Compliance

HMRC statistics in 2021 showed a tax gap attributable to Gift Aid of around £179 million: that’s the figure claimed by donors who are not, in fact, eligible to use the scheme. It’s always important to check that you have enough income tax or capital gains tax in charge to cover Gift Aid donations. Where there is an error, the donor rather than the charity or CASC, has to make good the shortfall.

Read the next section of our tax planning guide: Selling your business or return to the main page.