We have been asked this question by a number of charitable clients, what is Gift Aid and what are the Gift Aid rules?

Gift Aid is a simple way for your charity to increase the value of donations of money from taxpayers by claiming back from the Government the basic rate of tax paid by the donor.

When an individual, sole trader or partnership gives money to your organisation through gift aid, you can take their donation, which is money they have already paid tax on, and reclaim the basic rate of tax from the HM Revenues and Customs (HMRC) on its gross equivalent - the amount before basic rate of tax was deducted.

What are the Gift Aid rules?

All donors must:

• Pay enough UK income tax and/or capital gains tax themselves to cover the amount of tax the organisation will reclaim from the government
• Complete a Gift Aid declaration form for the organisation, which should include:
  • name
  • home address
  • organisation's name
  • confirmation it is a gift aid donation
  • confirmation the donor has paid UK tax to cover the tax the organisation will reclaim

A declaration can be made to cover individual donations, a series of donations as well as donations made during a specific period and all future donations. All donations can be backdated for up to six years prior to the date of the declaration provided that the donation was made since 6 April 2000.

If a donor pays the basic rate of tax, they cannot claim further tax relief on the payments. If they pay a higher rate of tax, they can claim higher rate relief on the payments by entering the donations in the gift aid box on their self assessment tax return.

Your organisation must keep adequate records to support any claims to the government for Gift Aid and details of all donations. All donations and tax repayments through Gift Aid can only be used for charitable purposes.

Basic rate tax is 20 per cent, so this means that if the donation is £10 using Gift Aid, it's worth £12.50 to the charity.

If you require specialist legal advice regarding any aspect your charity, get in touch we'd be pleased to help.