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Gift Aid might sound like a dry tax topic, but if you donate to charity in the UK, understanding how it works could make your giving go further.
From making simple declarations to claiming extra tax relief as a higher-rate taxpayer, this guide breaks down everything you need to know about Gift Aid for 2024/25.
With the right approach, every £1 you donate can become £1.25 for your chosen causes, at no extra cost to you.
Introduction
Gift Aid is a brilliant tax relief scheme that allows UK charities to claim an extra 25p for every £1 you donate. It is a government scheme designed to help charities reclaim tax on donations from UK taxpayers. It costs you nothing extra but makes a massive difference to the causes you care about.
For higher and additional rate taxpayers, there’s even more good news. You can claim back the difference between your tax rate and the basic rate on your donations as gift aid tax relief.
For charities, Gift Aid is a financial lifeline. It brings in over £1.3 billion extra funding each year.
Pie tax, the UK’s first personal tax app, tracks your Gift Aid donations so you never miss out on tax relief. Or if you’re just here to get to grips with it all, let’s break it down!
How Does Gift Aid Actually Work?
When you make a donation to charity, you’ve already paid tax on that money. This could be through your salary, pension, or investments.
Gift Aid allows the charity to reclaim the basic rate tax (20%) that you’ve paid on your donation and reclaim tax from HMRC. This turns every £1 you donate into £1.25 for the charity.
All you need to do is make a simple Gift Aid declaration. This is a formal Gift Aid agreement between you and the charity. You can complete a gift aid declaration form, either online or in person. Alternatively, you can make an oral declaration, which the charity must confirm in writing.
A declaration form is required for the charity to reclaim tax on your donation. This confirms you’re a UK taxpayer and have paid enough tax to cover the amount the charity will reclaim.
The charity then handles the paperwork with HMRC. They get that extra 25% added to your donation without you paying a penny more.
Who Can Use Gift Aid?
You can use Gift Aid if you’re a UK taxpayer, but to be eligible for Gift Aid, you must meet certain criteria, including paying sufficient UK tax in the same tax year to cover the amount reclaimed. Only donations that qualify under HMRC rules are eligible for Gift Aid, and Scottish taxpayers may have different rules or additional reliefs when claiming Gift Aid.
For every £1 you donate, you need to have paid at least 25p in tax that year. You must be paying tax and have paid sufficient UK tax for the year for your donations to qualify. If you haven’t paid enough tax, HMRC may ask you to pay the difference. If you stop paying tax, you must inform the charity to avoid issues.
Gift Aid doesn’t work if you’re donating someone else’s money; you must use your own money or own funds for the donation to qualify. It also doesn’t apply when making a donation on behalf of a company.
A donation is eligible for Gift Aid if it is a genuine, voluntary gift made from your own funds, without receiving anything in return. It applies to donations made to registered charities and community amateur sports clubs. Certain museums and galleries can also claim Gift Aid.
Extra Benefits for Higher Rate Taxpayers
If you pay tax at the higher rate (40%) or additional rate (45%), Gift Aid offers you an extra bonus compared to the basic rate (20%). The difference between higher and basic rate tax relief means that higher rate taxpayers can claim back more than those paying only the basic rate.
For example, if you’re a 40% taxpayer and donate £100, the charity gets £125 with Gift Aid. You can then claim tax relief by claiming back £25 for yourself through your tax return.
For 45% taxpayers, you can claim back £31.25 on that same £100 donation. This is the difference between 45% and 20% on your £100.
Last year, I donated £500 to a local hospice. As a higher rate taxpayer, I was able to claim back £125, which I then chose to donate again.
You claim this extra tax relief through your Self Assessment tax return. Alternatively, you can ask HMRC to adjust your tax code. In some cases, tax credits may also be relevant for donors when claiming Gift Aid tax relief, especially if you have other sources of income or tax benefits.
Special Types of Gift Aid Declaration
The Gift Aid Small Donations Scheme allows charities to claim on cash donations under £30. They don’t need Gift Aid declarations, which is perfect for collection tins.
Charity shops can claim Gift Aid on the proceeds from selling your donated items. They’ll ask for your details when you drop off your donations.
All donations received are carefully recorded for Gift Aid purposes, and the gross donation, the total value before any fees or deductions, is used for accurate financial reporting.
Annual statements provided by the charity may reference the previous tax year to ensure proper tax reporting.
Payroll Giving works differently. These donations come directly from your pre-tax salary, so the full tax relief happens immediately.
Sponsored events like marathons or bake sales can also use Gift Aid. Each sponsored event requires sponsors to complete a separate Gift Aid declaration if they wish to claim tax relief. The charity will usually provide special sponsorship forms that include Gift Aid declarations. For Gift Aid eligibility, total annual donations are considered when making a claim.
Fundraising Events and Gift Aid
Fundraising events, like sponsored runs, bake sales, or charity auctions, are fantastic ways to support your favourite causes, and Gift Aid can help boost the money raised. To qualify for Gift Aid, donations made at these events must be genuine gifts from UK taxpayers who have paid sufficient tax to cover the Gift Aid claimed.
Charities can claim Gift Aid on sponsorships and voluntary donations made by eligible UK taxpayers at fundraising events.
However, it’s important to remember that payments for goods or services, such as buying a raffle ticket, paying for an auction item, or purchasing entry to an event, do not qualify for Gift Aid.
Only freewill donations, where the donor receives no significant benefit in return, are eligible for the scheme.
To make the most of Gift Aid at fundraising events, charities should provide clear information about the Gift Aid scheme and ensure donors complete a Gift Aid declaration.
Accurate records of all donations and declarations are essential for claiming Gift Aid correctly. Charities should also be aware of the rules around donor benefits, as receiving goods or services in return for a donation can affect eligibility.
By following these guidelines, charities can maximise the impact of fundraising events, ensuring that every eligible donation is boosted by an extra 25% through the Gift Aid scheme.
Common Gift Aid Mistakes to Avoid
The biggest mistake is signing Gift Aid declarations when you don’t pay enough tax. This creates a tax liability for you, as HMRC may ask you to pay the difference.
Always tell charities if your tax status changes. If you stop paying enough tax, you should let them know to stop claiming Gift Aid on your donations.
Keep records of your donations if you plan to claim higher rate tax relief. This is especially important if you support many charities or more than one charity, as you need to track each donation separately.
Donors can support many UK charities through Gift Aid, but must keep accurate records for each charity to ensure compliance. Online donation platforms usually provide annual summaries to help with this. When completing your tax records for Gift Aid donations, remember that the married couple's allowance may also be relevant.
Don’t miss the deadlines for claiming your higher rate tax relief. You typically have four years from the end of the tax year in which you made the donation.
Gift Aid Record-Keeping
Charities must keep your Gift Aid declarations for at least six years. These can be paper forms or electronic records. Charities are also required to comply with Charity Commission regulations regarding record-keeping and reporting.
As a donor, you should keep records of your donations if you’re claiming additional tax relief. Bank statements, receipts, and emails from donation platforms all count as evidence.
Most online donation platforms like JustGiving will send you annual summaries of your Gift Aid donations. This makes tax return time much easier.
Some charities use a wholly owned subsidiary to manage trading activities and Gift Aid claims, which can offer legal and tax advantages.
HMRC might ask for evidence of your donations if they investigate your tax affairs. Keeping good records is therefore important.
Final Thoughts
Gift Aid is one of the simplest yet most powerful ways to boost your charitable giving. The charity gets 25% extra, and higher rate taxpayers can claim some tax back too.
Always make sure you're eligible before making a Gift Aid declaration. You need to have paid enough tax to cover what the charity will reclaim.
For regular donors, Gift Aid adds up to a significant boost for your favourite causes over time. All this comes at no extra cost to you.
Pie tax: Simplifying how does gift aid work Tax
Keeping track of Gift Aid donations can be fiddly, especially when claiming higher rate tax relief. Pie tax captures and organises all your charitable giving.
Our smart system calculates exactly how much additional tax relief you're entitled to. We show you in real-time how your donations affect your overall tax position.
When tax return season comes around, all your Gift Aid information is already organised. No more hunting through emails or trying to remember which charities you supported.
Fancy seeing how it works? Take a look at the Pie tax app to see how we can make your charitable giving even more rewarding.
