Amidst the baubles and festive cheer, whether you’re in business or pay tax as an individual, how can you make your altruism go a bit further by taking advantage of valuable tax breaks?
Individuals
Tax relief for gift aid payments is open to all individuals who pay sufficient UK tax and complete the necessary declaration on any donations. Tax relief for gift aid can be claimed by asking for an adjustment through your PAYE code or completing a Form P810 . If you’re in self-assessment you must also report it on your tax return.
Tip. Keep a record of all charitable donations including any gift aided membership or admission fees to attractions, as they are easily forgotten.
Cash gifts.Gift aid donations count as net of basic rate tax, e.g. a donation of £80 becomes £100 in the hands of a charity. While that’s it for basic rate taxpayers, extra relief is available for higher and additional rate taxpayers, e.g. on a donation of £80, the total tax relief is £40 (40% of £100).
Tip. You can treat a donation as made in the previous tax year so long as the appropriate election is made on the tax return when first submitted, e.g. if the 2022/23 tax return is filed in December, all donations made since 6 April 2023 are eligible for carry back to 2022/23.
Gift aided goods. You can also donate goods via gift aid, e.g. to a charity shop. The charity will notify you when and for how much they are sold so you can claim any higher rate tax relief you’re entitled to. Example . Ann, a higher rate (40%) taxpayer, has been clearing her loft and donates a stack of books to a charity shop. It sellls them for £300 and notifies Ann. The £300 equates to gift aid of £375 meaning Ann can claim extra tax relief of £75 (£375 x (40% - 20%)).
Shares and property. Donating shares or property to a charity provides both income tax and capital gains tax relief for the donor, but no extra top-up for the charity (see The next step ).
Tip. For an asset standing at a loss, it can be beneficial if the donor sells it first before donating the proceeds.
Extra tax savings
Git aid can reduce or prevent a high income child benefit charge and the abatement of the personal allowance.
Gifts by businesses
Gift aid doesn’t apply to companies. However, special rules allow profitable businesses undertaking unpaid work for charities to claim deductions for related costs including materials and seconded employees. For companies, charitable donations are deductible from the company’s total profits on which they pay corporation tax.
Extra money for charities
Given these tough times the 25% uplift on gift aid donations is vital for many charities to keep going. Even if you can’t give money, volunteering your time can be turned into a cash donation.
Tip. Most charities offer to pay volunteers’ expenses, e.g. travel costs. Don’t refuse these. Instead when you receive a payment donate it back to the charity as a gift aid payment. This allows the charity to claim the 25% uplift.
Gift aid relief for higher earners reduces the cost of donations, e.g. as a higher rate taxpayer a gift of £400 reduces your tax by £100. Gift aid donations can also prevent other tax charges. Gifts of goods, shares and property can also qualify for gift aid. Companies can’t claim gift aid but instead donations reduce their taxable profits.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.