How does Gift Aid work?
Gift Aid is a tax reclaim scheme run by the UK government. Through the scheme, charities and churches in the UK can increase the value of donations they receive. They can reclaim the basic rate tax paid on the donation by the donor.
You can claim 25p per £1 donated. So, on a gift of £100, you can receive an extra £25 at no cost to the donor. You can then use it to fund your church or charity’s work.
Who can give Gift Aid?
To qualify for Gift Aid, donors need to be a UK taxpayer. They also need to have paid enough tax to cover the amount of tax reclaimed by all charities on all their donations for each tax year (6th April to 5th April the following year). This includes:
- Tax on income from a job or self-employment
- Tax deducted at source from savings interest
- Tax on state pension and/or other pensions
- Tax on investment or rental income (including tax credits on UK dividends)
Other taxes such as VAT and council tax do not qualify, nor does any non-UK tax.
If donors have not paid tax at least equal to the Gift Aid to be recovered from their donations (25% of the donation amount), HM Revenue and Customs (HMRC) will require a payment from the donor for the difference.
Gift Aid processes
The Gift Aid guidelines require charities to have a completed Gift Aid declaration form from each donor to reclaim the tax on their donations. Declaration forms should include the following:
- The name of the charity
- The full name and home address of the person making the donation, including their postcode. (Declaration forms can only be for individuals, not couples).
- A statement that the individual pays income and/or capital gains tax at least equivalent to the tax that your charity will claim from HMRC and that the person wants their donations to be treated as Gift Aid donations.
Without this data and the declaration form you cannot claim Gift Aid on a donation.
You can only claim Gift Aid on donations or ‘gifts’. You can’t claim on entry fee, or ticket charges, or where people have entered a competition.
What types of donations are eligible for the scheme?
Most regular and single personal donations are eligible, for example:
- Direct Debits, Standing Orders, cheques, cash and online giving
Donations that are not eligible include:
- Payroll Giving donations
- Company or Trust donations (i.e. non-individual donations)
Can I claim Gift Aid for special appeals or offerings?
Yes, you can. However, you need to allocate the Gift Aid claimed to the same restricted fund that the original donation was given to. For example, this may be a restricted buildings fund. Charity Accounting Software like ExpensePlus takes care of this automatically.
Can I claim for donations passed on to other charities?
Perhaps your church or charity collects donations that you then give to other projects or charities. These donations that are passed on are sometimes called conduit funding. They may or may not be eligible for Gift Aid. This blog article explains whether you can still claim on such donations.
How do I set my charity up to claim Gift Aid?
In order to claim Gift Aid you need to be recognised as a charity.
You can apply for recognition as a charity using HMRC’s online service.
This is different to registering with the Charity Commission.
If you apply for HMRC recognition online, you will need to set up a Government Gateway account. You can do this by selecting ‘Create sign-in details’ when asked to ‘Sign in using Government Gateway’. You will need to select a password, and you will get a 12-digit User ID. Make a record of the User ID and the password, as you will need them to log in and make claims.
You will then need the following details to hand to register:
- The Charity’s bank account
- Trustees details
- Charity number
- Charitable purposes (contained in your governing document)
- A copy of the governing document
Gift Aid Small Donation Scheme (GASDS)
In addition to claiming Gift Aid on donations from individuals, you can reclaim tax from HMRC for cash and contactless card donations under £30 via the Gift Aid Small Donations Scheme (GASDS).
You need to be registered for Gift Aid to claim GASDS. This blog article contains more information about GASDS, including the limits that apply.
How can I maximise our Gift Aid claims?
There are several other things you can claim Gift Aid on, but it’s complex. For example, you can claim on sponsored events, donated items, etc. Check the HMRC website for other types of donations and sponsorship that are eligible.
Change of Charity
If you change your charity, you need to register as a new organisation with HMRC and other external agencies. You will have to submit claims to HMRC as a new charity. This applies if you change from being an unincorporated charity to being a CIO.
Claiming Gift Aid in ExpensePlus
If you are looking for an easy way to manage your charity finances and claim Gift Aid, then check out the fund accounting software ExpensePlus.
ExpensePlus directly integrates with HMRC for claiming Gift Aid. It provides a simple and efficient process for allocating donation income, tracking Gift Aid eligibility, and creating claims. So, you can claim Gift Aid at the click of a button!