Make donations tax-efficient

  • To understand how gift aid works
  • To learn how gift aid affects one’s tax allowances
  • To learn how to use one's company to make a donation
  • To understand how gift aid works
  • To learn how gift aid affects one’s tax allowances
  • To learn how to use one's company to make a donation
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CPD
Approx.30min
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CPD
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CPD
Approx.30min
Make donations tax-efficient

You can use Gift Aid if the amount of income tax and/or capital gains tax you have paid for the tax year in which you make your donation is at least equal to the amount of basic rate tax the charity will reclaim on your gift. If more than one Gift Aid donation has been made in the tax year they must be added together to work out the tax the donor must be charged with.

If the donor is not charged with sufficient tax to cover the income tax deducted from their gift aid donations, they will owe the amount of the difference in tax to HMRC. For this reason, it is important non-taxpayers must not use the Gift Aid scheme.

At the same time, it is also worth noting that you do not necessarily have to be working to be paying tax. Apart from tax on income from a job or self-employment, the tax you have paid could include:

 Tax deducted from savings income or interest. The tax-free personal savings allowance of £1,000 (£500 for higher-rate taxpayers) for savings income or interest was introduced from 6 April 2016. This means most people no longer pay tax on savings interest because banks and building societies no longer deduct tax from interest they pay on their savings accounts. However, donors who have savings income or interest in excess of £1,000 [£500 for higher-rate taxpayers] will have to pay some tax that can be used to cover Gift Aid donations.

 Tax on state pension and/or other pensions depending on overall income level.

 Tax on investment or rental income. The introduction of the dividend allowance on 6 April 2016 means that individuals do not pay tax on the first £5,000 of their income from dividends paid by companies that they own shares in. This means that donors that have paid tax on dividend income over the £5,000 allowance will have some tax that can be used to cover their gift aid donations.

 Capital gains tax paid on gains. Other taxes such as VAT and Council tax do not qualify, nor does any non-UK tax.

Self assessment

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