Gift Aid

Gift Aid is a scheme which allows charities to claim an extra 25p for every £1 donated (or more prosaically - to claim basic rate tax on donations from UK taxpayers).

The standard requirements for you to be able to claim Gift Aid on a donation are that:

• it is a sum of money given to a charity (or Community Amateur Sports Club) recognised by HMRC – this isn’t the same as being a registered charity
• it is from an individual who is a UK taxpayer (and has paid at least as much in Income Tax or Capital Gains Tax as you want to claim in Gift Aid)
• the donor must have made a Gift Aid declaration
  
• it is a genuine gift; freely given, no significant benefit given in return either to the donor or to person connected with them – benefit rule
• you must be able to provide evidence of receipt of donation.

You can’t claim Gift Aid on:

• payments for goods or services like tickets for concerts
• gifts made on behalf of other people – eg membership subscription purchased on behalf of someone else
• ’minimum donations’ where there is no choice about paying – if HMRC audit your repayment claim, they will check what benefits donors have received (including looking at correspondence) and are clear that just because you call something a donation doesn’t mean it is freely given and therefore a gift
• donations from a company – though the company can get tax relief for qualifying charitable donations
• money sent in from a collection (though you may be able to claim under the Gift Aid Small Donations Scheme GASDS).
  

The full list is available here

Because it is not always clear, HMRC has set out a series of special rules to deal with common situations, many of which are to do with the idea of the donor getting a benefit:

• Funds from sponsored challenges for example overseas treks or marathons
• Charity membership fees
• Church collections where money is collected on behalf of another cause
• Selling goods on behalf of individuals, for example through a charity shop.  As the link explains, there is a special scheme called Retail Gift Aid. The Charity Retail Association provides guidance and support on this and other aspects of charity retail
• Charity events – you can’t claim for a minimum donation, but you can claim if people pay over and above your set ticket price
• Viewing charity property – ordinary entry fees to view a property won’t qualify, but HMRC stipulate conditions under which a voluntary donation will qualify
• Charity auctions – there are certain circumstances when you can claim the amount someone pays above market rate
• Volunteer expenses donated back to your charity – you can only claim Gift Aid on money that actually changes hands
• Funds raised through charities involved in running schools

It can be really easy when you are looking at the rules to get carried away chasing after the Gift Aid, but just because you can, doesn’t mean you should. 

For example with trustee expenses, if people have chosen to forego expenses, you could set up a system so that they make claims, you make payments to them, they give you the money as a gift and you can reclaim the Gift Aid.  But – would the amounts involved be worth the cost of the administration? Would the trustees all hand over the money or would you end up with less? What impact might it have on the relationships?

It seems reasonable if Gift Aid is about the donor being rewarded for making a gift by getting tax relief that HMRC are fairly determined about them not getting too much extra on top of that. 

So if a donor, or someone connected to them, receives a significant benefit as a result of giving money to the charity, then the donation won’t be eligible for Gift Aid.  If the donor gets a benefit first, for example a parent whose child has been treated on a particular ward and gives the donation in gratitude or recognition, then that is a different situation.

The benefit is not necessarily an item with a market value, it could be attendance at a special dinner, and you must look at the value to the donor, not at the cost to you. 

Charity challenges are often caught by the benefit rules - overseas treks or adventures can provide a big benefit to the participant and without special arrangements, Gift Aid can’t be claimed on donations from them or their partners, parents or children.

The benefit rules also apply to qualifying corporate donations.

HMRC understands that you will want to acknowledge your donors so you can give literature about your work, small tokens of appreciation, or other acknowledgements (be careful about the line between acknowledgement and advertisement) so they have set limits on the value of benefits. 

Current limits are:

Relevant value and aggregate value

For each donation, you have to look at the value of the benefit you are giving in relation to that specific donation (relevant value), and at the total value of any benefits received as a consequence of Gift Aid donations made by the same donor in the same tax year (aggregate value) to make sure that they don’t exceed the limits set by HMRC. This is illustrated in an example here: 

There are special rules for:

• memberships where people are making regular payments
• making split payments where a benefit would exceed the limits - the donor can make a payment to cover the costs of the benefit and a voluntary donation, for example for a scheme which involves a number of free tickets.

Donors must confirm that they want you to claim back the tax relief on their donations by way of a declaration that says the donor:

• has not paid less in income tax or capital gains tax in that tax year than will be claimed back in Gift Aid on all their donations. You also need to include a statement that makes it clear that if they haven’t, it is their responsibility to pay any difference - this is in the examples from HMRC
• agrees to you claiming Gift Aid.

The declaration also needs to give:

• details of the gift (though for multiple donations it will state that it covers the current donation amount, plus any donations in future, or for the past four years)
• name of your organisation
• donor’s name (at least initial and last name – something that could be linked to other HMRC records for that person)
• donor’s home address (at least house number/name and postcode – again to be able to be linked to HMRC records).

HMRC provide example written declarations for:

• one-off donations
• multiple donations
• sponsorship forms.

It is worth making sure that whatever declarations you use have wording that matches these and keep them up to date as the rules change.

HMRC also have guidelines on what they would take as evidence of a declaration if you don’t get a written form eg for text donations.  You need to make sure that you have evidence generated by the donor, not by you – so a recording of a conversation would be acceptable, but a transcript of it taken down by a member of your staff would not.

You need to keep a record of declarations for six years after the most recent donation.

If you can’t get a declaration for cash donations of £20 or less, you might be able to claim a top up under the Gift Aid Small Donations Scheme

If you want to claim Gift Aid you need to be registered with HMRC (which is different from registering with the Charity Commission).  They need to be satisfied that you are properly run, by reputable people and charitable in intent, even if for some reason (like you are too small) you are not eligible to be a registered charity.

The GOV.UK pages that take you through the process are clear, helpful and warn you what information you need to collect before you start filling in the form. 

Confirmation can take up to six weeks from when you send your details.

You can make claims in various ways.

• By post, using the form ChR1 – for up to 90 donors – you need to get the form from the Charities Helpline
• Using Charities Online
  • Downloadable spreadsheet of your donations – for up to 1000 donors. The spreadsheet has clear instructions on how to complete it, along with some examples and a link to further guidance if you need it.
  • Eligible software

Once you have properly registered with HMRC and followed the instructions to add Charities Online to your account, you can then go to this page and click on the big green start now button, ready to upload your spreadsheet.

Time limits for making a claim:

• Charities other than charitable trusts - four years after end of accounting period during which donation received
• Charitable trusts – four years after and of tax year during which donation received

HMRC Charities helpline 0300 123 1073 (Monday to Friday: 8:30am to 5pm) is also very helpful

The kinds of records you will need to keep alongside your standard accounting records are:

• Gift Aid declarations
• evidence of donations
  • Standing Order forms plus a log of donations which can be linked to bank statements proving receipt
  • Planned giving envelopes
  • One-off donation – gift envelope or declaration
• correspondence – this covers anything relevant to Gift Aid including changes of personal details
• records of benefits given to donors.

HMRC need to ensure that the tax repaid to the charity is properly calculated and actually due.  When they come to check, they want to be able to pick any donation listed on a Gift Aid claim and match it to a valid declaration, as well as to evidence that the money has actually been received by the charity and has been properly accounted for.

What format these details are kept in will depend on your size and accounting records - try doing a walk through and make sure that you have a filing system that will allow you to do that matching efficiently.  Talk to other organisations with similar levels of Gift Aid and see how they keep their records.

More help: https://www.institute-of-fundraising.org.uk/guidance/fundraising-essentials-legislation/tax-effective-giving/gift-aid/keeping-records/

How long to keep records for

• Charities other than charitable trusts – six years after the end of the accounting period they relate to
• Charitable trusts – later of
  • Six years after the end of the tax year they relate to
  • 12 months after the charity makes a Gift Aid repayment claim for that year

HMRC only makes a limited check before paying out a claim, so they pick a sample of organisations to go and audit more thoroughly.  More details of this are on the Charity Tax Group website

• HMRC has produced guidance from the donor perspective which may be useful to point your supporters to.
• The Institute of Fundraising has useful guidance – though not all the thresholds for benefits etc have been updated so please refer to GOV.UK to make sure you have the latest information.
• Parish Resources has produced a series of guides and checklists for the Church of England which have got some useful tips for any small organisation.