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Charitable giving doesn’t just help the causes you care about, it can also bring valuable tax benefits that many people don’t realise they’re entitled to. With the right knowledge, you can make your donations go even further and ensure you’re not missing out on reliefs that could reduce your tax bill. Let’s take a closer look at how charity tax relief works and how you can make the most of it.
What is charity tax relief all about?
When you donate to charity in the UK, you’re not just doing something good, you might also be able to get some tax back. The UK tax system rewards your generosity through reliefs on income tax, including a gift aid scheme called Gift Aid, which allows charities to claim extra funds from HMRC, as well as other tax relief options.
Many donors don’t realise they’re leaving money on the table by not claiming the tax relief they’re entitled to. Whether you’re a basic, higher, or additional rate taxpayer, understanding how to claim back charity donations tax can make your giving go further.
How exactly do you claim back charity donations tax?
The most common way to claim tax relief on charitable donations is through your Self Assessment tax return. There’s a specific section to claim gift aid for charitable giving. If you don’t file a tax return, you can still claim by choosing to contact HMRC directly or using their online services.
For basic rate taxpayers, the charity will claim gift aid and claim an extra 25p for every £1 you donate. Higher and additional rate taxpayers can claim back the difference between their tax rate and the basic rate on top of what the charity claims. You can personally claim this additional tax relief through your Self Assessment tax return or by contacting HMRC.
Keep all your donation receipts and Gift Aid declarations as evidence. You might need these if HMRC asks questions. You must have paid enough income tax in the relevant tax year to qualify for Gift Aid. You can claim tax relief up to 4 years after the end of the tax year in which you made the donation.
What donations qualify for tax relief?
Money donated to registered UK charities and community amateur sports clubs qualifies for tax relief when accompanied by a Gift Aid declaration. Most donations to these organisations, including community amateur sports, are eligible for tax relief, allowing a charity can claim additional funds from HMRC. Donations through Payroll Giving schemes automatically receive tax relief before the money leaves your pay.
Gifts of land, property, or shares donated to charities can also qualify for tax relief, though the process is slightly different. However, only certain types of assets, such as shares listed on recognised stock exchanges or specific property types, are eligible for these reliefs. Remember that donations of goods to charity shops don’t qualify for Gift Aid unless you’re selling items on the charity’s behalf.
Both one-off and regular donations can be eligible, so your monthly charity subscriptions count too. Community amateur sports clubs (CASCs) are also eligible for Gift Aid and tax relief. I discovered this myself last year when I set up a monthly donation to a wildlife charity and was pleasantly surprised by the tax benefits.
How do higher rate taxpayers benefit?
If you are a higher rate taxpayer (paying tax at 40% or 45%), you can claim back the difference between your tax rate and the basic rate (20%). For example, as a higher rate taxpayer donating £100, the charity receives £125 through Gift Aid, and you can personally claim back £25 (the 20% difference). In contrast, a basic rate taxpayer would not be able to claim any additional relief beyond the Gift Aid uplift.
You’ll need to provide details of your donations on your Self Assessment tax return to get this additional relief. This tax relief can either reduce your tax bill or sometimes be allocated to a different tax year if that’s more beneficial.
Some higher rate taxpayers ask HMRC to adjust their tax code instead, which spreads the benefit throughout the year rather than waiting for a refund. Claiming this relief can reduce your taxable income, providing a more immediate benefit and helping with personal budgeting.
What mistakes should I avoid when claiming?
The most common mistake is not keeping proper records of your donations. Always save those receipts and confirmation emails! Forgetting to make a Gift Aid declaration means the charity can’t claim the extra 25%, and you can’t claim higher rate relief. If you cancel a Gift Aid declaration, it will affect future donations and their eligibility for tax relief.
Missing the 4 year deadline is another pitfall - don’t leave it too late to claim what you’re entitled to. Sometimes, you can carry back donations to the previous tax year or previous year if you make an election on your tax return. Donations made in the current tax year must be reported correctly. Remember that you must pay enough tax to cover the Gift Aid claimed by charities. If you don’t, you may have to pay back the difference.
Don’t try to claim for donations that don’t qualify, like buying raffle tickets or paying to attend charity events. These are considered payments for goods or services rather than pure charitable donations.
Can businesses claim tax relief on charitable donations?
Absolutely, businesses can claim tax relief on charitable donations, making giving back not just good for the community, but also smart for your bottom line. If your business donates money, land, property, or shares to a registered charity, you can claim tax relief by deducting the donation value from your business profits before calculating your corporation tax. This means your company’s tax liability is reduced, allowing you to keep more of your profits while supporting causes you care about.
It’s not just cash donations that qualify. Gifts of assets such as land or shares can also be eligible for tax relief, provided they’re given to a registered charity. When it comes to sponsorship payments, your business can claim tax relief as long as the sponsorship isn’t classed as a business expense, so it’s important to understand the distinction. Sponsorships that promote your business (for example, in exchange for advertising) are usually treated as business expenses, while pure charitable donations are deducted before corporation tax.
By making charitable donations, businesses can not only make a positive impact but also benefit from a lower corporation tax bill. Just remember to keep clear records of all donations and payments to ensure you can claim the full amount of tax relief available.
What records and documentation do you need to keep?
To successfully claim tax relief on charitable donations, your business needs to keep thorough and accurate records. This means saving receipts, invoices, and bank statements that clearly show the date, amount, and recipient charity for each donation. If you’re claiming Gift Aid, make sure you have copies of any Gift Aid declarations, as these can affect the amount of tax relief you’re entitled to claim.
For sponsorship payments, keep detailed documentation outlining the amount paid, the purpose of the payment, and the charity involved. These records are essential not only for claiming tax relief but also in case HMRC requests evidence to support your claim. It’s recommended to retain all relevant records for at least six years, which is the standard period for HMRC inquiries.
Additionally, keep track of your business’s taxable profits and corporation tax liability to ensure you’re claiming the correct amount of tax relief. By maintaining comprehensive records, you’ll be well-prepared to claim tax relief on your charitable donations and sponsorship payments, and you’ll have peace of mind if HMRC ever comes calling.
Should you seek expert financial advice?
Navigating the rules around claiming tax relief on charitable donations can be complex, especially with the different schemes and regulations involved. That’s why seeking expert financial advice is a smart move for businesses looking to maximise their tax relief and ensure compliance. A qualified financial advisor can help you understand the ins and outs of Gift Aid, capital gains tax, payroll giving schemes, and corporation tax relief, making sure you’re claiming everything you’re entitled to.
An advisor can also guide you on the best ways to keep records, complete paperwork, and structure your charitable giving for maximum tax efficiency. Whether you’re considering donating assets, setting up a payroll giving scheme, or simply want to make sure your business is making the most of its charitable donations, professional advice can help you avoid costly mistakes and take full advantage of available tax relief.
By consulting with an expert, you can confidently claim tax relief, support your chosen charities, and ensure your business is fully compliant with HMRC regulations. It’s an investment that can pay off in both financial savings and the satisfaction of making a real difference.
Pie Tax
Claiming back charity donations tax is straightforward once you know the steps. It's worth taking a few minutes to understand the process. By claiming the tax relief you're entitled to, you can either donate more to causes you care about or reduce your tax bill.
Keep your records organised and remember to complete those Gift Aid declarations when eligible. For help managing all aspects of your personal tax, including charitable donations. Pie Tax offers integrated bookkeeping, real-time tax figures, and simplified tax returns with expert advice when you need it. Why not check if your donations qualify for tax relief? You might be surprised by how much you could save.
Why not make sure you're getting the full benefit of your generosity? Your chosen charities, and your wallet, will thank you for taking the time to claim what you're due.
