As a UK tax payer, there are benefits of donating to registered charities and community amateur sports clubs (CASCs). For every £1 you donate, the charity can claim an extra 25 pence from the government, effectively increasing the donation by 25%. In addition certain taxpayers can get tax relief – how does it work?
Increasing your donation
If you make a charitable donation, most charities will ask you if you want to claim Gift Aid.
In order to claim Gift Aid, you need to complete a short declaration form providing a few details so they can link your donation to your UK tax account.
To qualify for Gift Aid, it is important that your total donations do not exceed the sum of four times the total tax you have paid within the tax year, from 6 April to 5 April.
It is possible to claim all donations from the past four years so ensure you inform the charity about any tax previous years where you didn’t pay enough tax to qualify.
Claiming tax relief on donations made through Gift Aid
If you are higher rate taxpayer, there is an advantage to you, as well as the charitable organisation, for making donations.
It is possible to claim the difference between the basic rate of tax and the higher rate of tax related to the donations you make.
This can be done through your Self-Assessment Tax Return, which is the most common way. Work with your accountant to ensure this is completed correctly and the right amount of tax relief is claimed.
Alternatively, it is possible to ask HMRC to amend your tax code to reflect your donations, which can be useful if you plan to make structured, regular donations every tax year, rather than just one-off payments.
How much tax relief can you claim?
To use an example, if you donate, £100 to a registered charity and make a declaration for Gift Aid, the charity will claim an additional £25, making your total donation £125.
As a higher rate taxpayer it is possible to claim the difference between higher rate tax (40%) and basic rate tax (20%) on the total donation.
Therefore, on a £125 total donation, you can claim back 20%, so £25.