Urgent : Gift aid

cestlavie

A note to everyone! A friend was persuaded last year to sign up to gift aid by several local charity shops as she was clearing her house and donating a lot of books and clothes in their stores. Thinking she paid tax, as tax debits showed up on her various share dividends she signed up for several charity shops as being a legal gift-aider. I have only just realized she was persuaded to join gift aid by persuasive charity shop staff and not by clear thinking on her part and now in an attempt to sort out her finances i discover she is liable for the giftaid she was, in effect, mis-directedly sold.
I've found a few records from some of the charity shops in the last year who state her donations earnt them in total in an excess of £1k. Sadly however her earnings are not taxable so she is now liable for that giftaid.. I think she may now have to pay in excess of £400 + for the gift aid she unwittingly rasied via her donations of various books and clothes last year.
I mention all this for anyone with elderly relatives who may have signed up for gift aid not realizing the implications (- although you dont have to be old to be mislead by some charities!) The upshot is if you don't not pay a full amount of tax, gift aid is not for you. My neighbour thought she did pay tax (as she said she knew it was always deducted from her share dividends) The really sad thing is after looking thru her books, her total earnings last year were less than 4k.. from all her share dividedds and yet due to a few gift aid mess ups with her signature she is proably going to have to fork out about £400 for her various donations. This is someone who is on no benefits whatsoever and so unwittingly she is now going to have to pay £400 pn her total yearly earnings of about £4k beacuse she erroneously siged a gift aid form. It's really sad, she htought she was doing a good deed donating, but it's actually costing her dearly. Too sad. Keep a close eye and attention on elderly fok near you as they too
may be chugged into signing forms they don't understand the implications of and so a simple good deed on thier part may well cost them horribly dear.

sleepless_saver

cestlavie wrote: »

This is someone who is on no benefits whatsoever and so unwittingly she is now going to have to pay £400 pn her total yearly earnings of about £4k beacuse she erroneously siged a gift aid form.

Very useful post, the staff in charity shops don't make it clear enough that you have to be paying income tax.

You don't say what her exact circumstances are, but imply she's elderly. If her income is that low and she is a pensioner living alone, then unless she has a pretty significant amount of capital she would be entitled to pension credit. She should be getting at least £7500 income.

noh

Tax paid on UK dividends does count towards gift aid.
If she received £4k of dividends she would have been taxed at 10% ie £400.
That is enough to cover gift aid on £1600 of donations.

http://www.hmrc.gov.uk/individuals/giving/gift-aid.htm#3

Savvy_Sue

Just a couple of thoughts here: in an ideal world if you realise you are NOT liable to pay UK income tax then you should contact all the charities to which you've given a Gift Aid declaration and tell them that you are cancelling it. That's especially important if you intend to give to them in the future.

I know from experience that very few donors do this!

However, I didn't think that the donor was liable to pay the tax to the charity - there is nothing on any Gift Aid form I've ever seen to suggest that this is the case. If your friend feels that noh's advice does not apply, she may feel morally obliged to do so, but I'd have said it was up to the charity to adjust their next GA claim (and teach their staff to ask the right questions in future).

Savvy_Sue

Savvy_Sue wrote: »

However, I didn't think that the donor was liable to pay the tax to the charity - there is nothing on any Gift Aid form I've ever seen to suggest that this is the case. If your friend feels that noh's advice does not apply, she may feel morally obliged to do so, but I'd have said it was up to the charity to adjust their next GA claim (and teach their staff to ask the right questions in future).

OK, this has niggled at me, so I have checked the HMRC website and found that I may be wrong:

If the donor has not paid enough tax to cover the tax deducted from their Gift Aid donation(s), HMRC may ask the donor to pay the difference in tax. If the explanation is insufficient the Gift Aid declaration will not be valid and the charity may need to repay tax to HMRC.

Found it here, at 3.6.8, my emphasis.

So, going back to noh's advice: she would only have to pay that 'tax' to the various charities IF the Gift Aid declaration she agreed to had the correct form of words (many don't, even now), and IF HMRC tracked her down and asked her to.

But I guess the first step is to work out how much tax she is paying on her dividends. If it's not enough, then her first step should be to cancel at least some of her declarations and be very careful in future.

Savvy_Sue

sleepless_saver wrote: »

Very useful post, the staff in charity shops don't make it clear enough that you have to be paying income tax.

Income tax OR Capital Gains Tax: it's VAT and Council Tax and Insurance Tax and Fuel Duty which don't count.

And we've established that dividends are usually taxed before payment, and that's income tax.

zygurat789

noh wrote: »

Tax paid on UK dividends does count towards gift aid.
If she received £4k of dividends she would have been taxed at 10% ie £400.
That is enough to cover gift aid on £1600 of donations.

http://www.hmrc.gov.uk/individuals/giving/gift-aid.htm#3

The tax credit on £4k received as a dividend is £444.44 which is enough to cover a donation of £1777.76.

Note:

Net dividend £4000 + tax deducted £444.44 = £4,444.44
£4,444.44 X 10% = £444.44.

robrooo

So if a non-taxpayer, or indeed a low-rate taxpayer, gives their money to a high-rate taxpayer who then donates it to charity with gift aid, the charity gets the low-rate tax part without any redress to the non/low-taxpayer, and the high-rate payer gets the difference between low and high-rate adjusted in their tax return. The only condition is that the high-rate payer pays enough tax to cover the tax part of the donations.

So does this mean I could start a tax efficient "charity donation club"?

I currently pay around 30k in tax per year...

Savvy_Sue

AIUI, it has to be your giving that you Gift Aid. So people giving you money to give to charity technically can't be Gift Aided.

We sometimes have a situation when supporters take a collection at an event for us and then send us a personal cheque for the total. Even thought we might have a declaration from them, it's not their money so it can't be Gift Aided.

robrooo

Of course, that is the intention, but if someone gives me £100 and then I donate £100 to charity, how does HMRC know whether is was the "same" £100 or not (if I have say £1000 in my current account)?

I guess the question boils down to, if someone gives me some money, do I technically have to declare it as income and thus potentially pay tax on it? I've given and received money from relatives and even friends before, and some to friends which may have been a loan but not necessarily paid back...I would think the situation could get more complicated between family members where a lot of "giving and taking" of funds could take place.

On my Charities Aid Foundation account, next to the gift aid tick box, it says:

I understand that I must pay an amount of Income Tax and/or Capital Gains Tax for each tax year (6 April one year to 5 April the next) that is at least equal to the amount of tax that Charities Aid Foundation (CAF) will reclaim on my gifts for that tax year.

This condition is easily covered. On the HMRC website, the only example it gives is:

Gifts made on behalf of other people for example a membership subscription paid on behalf of somebody else - this is a gift of membership from the payer to the member not a gift made to the charity or CASC

i.e. it doesn't mention an outright donation.

Savvy_Sue

robrooo wrote: »

Of course, that is the intention, but if someone gives me £100 and then I donate £100 to charity, how does HMRC know whether is was the "same" £100 or not (if I have say £1000 in my current account)?

They're not.

robrooo wrote: »

I guess the question boils down to, if someone gives me some money, do I technically have to declare it as income and thus potentially pay tax on it? I've given and received money from relatives and even friends before, and some to friends which may have been a loan but not necessarily paid back...I would think the situation could get more complicated between family members where a lot of "giving and taking" of funds could take place.

There is no tax due on gifts, so if your relatives or friends give you £100 there's no need to declare it, and what you then do with it is your own affair.

robrooo wrote: »

On my Charities Aid Foundation account, next to the gift aid tick box, it says:



This condition is easily covered. On the HMRC website, the only example it gives is:



i.e. it doesn't mention an outright donation.

I'd say what you're suggesting falls midway between the two, BUT it seems to me that you're heading for a very 'interesting' situation if you're going to encourage people to give you money which you then pass on to charity using Gift Aid and then reclaim some tax because you're a higher rate tax payer.