Tax calculation for gift aid

elljay

Not sure if this is the right place but hopefully someone can help.

My mum has received a gift aid declaration form from her church and has been concerned that she doesn't pay enough tax for this and other charities she subscribes to. Thanks to others on the pensions board I have sorted out how much tax she pays which is about £2818 p.a. So obviously she can gift aid up to that amount. She doesn't do tax returns any more, so wouldn't claim anything back for charity donations.

However the letter from the church gives an example of an income of £25k, so tax about £2,630 so can give away around £10k in gift aided donations. This is the bit I don't understand - where does the £10k come from, why isn't it £2,630?

Thanks for any advice. I've looked online but none the wiser!

EJ

Edited to say, I think the penny has dropped. So the tax the charities can claim is max £2630 so she can give away 4 times that. Actually the figures still don't add up as 4 X 2630 is more than £10k. Oh dear, my head hurts!

londoninvestor

Are they just doing some rounding when they say "about £10k"? I would agree that 4 * £2630 is the maximum figure for the hypothetical person in the answer - assuming that they doesn't have any deductions other than Gift Aid that take their tax below £2630.

xylophone

https://www.gov.uk/donating-to-charity/gift-aid

zagfles

elljay wrote: »

Not sure if this is the right place but hopefully someone can help.

My mum has received a gift aid declaration form from her church and has been concerned that she doesn't pay enough tax for this and other charities she subscribes to. Thanks to others on the pensions board I have sorted out how much tax she pays which is about £2818 p.a. So obviously she can gift aid up to that amount. She doesn't do tax returns any more, so wouldn't claim anything back for charity donations.

However the letter from the church gives an example of an income of £25k, so tax about £2,630 so can give away around £10k in gift aided donations. This is the bit I don't understand - where does the £10k come from, why isn't it £2,630?

Thanks for any advice. I've looked online but none the wiser!

EJ

Edited to say, I think the penny has dropped. So the tax the charities can claim is max £2630 so she can give away 4 times that. Actually the figures still don't add up as 4 X 2630 is more than £10k. Oh dear, my head hurts!

Maybe based on next year's personal allowance of £12500. Then it's exactly £10k on a £25k salary. Easier to think of the max gross donation as income over the PA, net donation is 80% of this.

Andy_L

elljay wrote: »

However the letter from the church gives an example of an income of £25k, so tax about £2,630 so can give away around £10k in gift aided donations. This is the bit I don't understand - where does the £10k come from, why isn't it £2,630?

The gift aid "bonus" is 25% extra on the amount donated, eg donate £100 & HMRC gives them £25. That bonus is paid for out of your income tax.

That bonus can't be more than the income tax you've paid so to reach that amount you would have to donate 4x your tax payment

polymaff

elljay wrote: »

Edited to say, I think the penny has dropped. So the tax the charities can claim is max £2630 so she can give away 4 times that. Actually the figures still don't add up as 4 X 2630 is more than £10k. Oh dear, my head hurts!

That's the problem with inconsistent data. Not always the easiest to reverse-engineer. I wonder if it was a Scottish church.

When something is taxed at 20%, you are left with 80% of the gross to give away. That is where the arithmetic originates.

HMRC isn't a charity, so they are prepared to pass on the tax paid - but only if that amount has actually been paid.

londoninvestor

polymaff wrote: »

When something is taxed at 20%, you are left with 80% of the gross to give away. That is where the arithmetic originates.

It's the same result either way though.

£10,520 donated to charity out of the individual's pocket means the tax relief claimed by the charity is 25% of £10,520 = £2,630.

£10,520 donated to charity out of the individual's pocket means the charity ends up with £10,520 + £2,630 = £13,150. The tax due on that is 20% * £13,150 = £2,630.

I can't give an answer to the OP's question of "why is it £10k rather than 4 * £2,630" other than "they must have rounded it down a bit for 'simplicity'".

Retired_at_55

I find this really helpful, thanks, as I always struggle understanding it.

I give about £115 per month to charity, mostly by standing order, and sometimes single amounts to sponser some things. I was encouraged to tick the Gift Aid box as I pay basic rate tax on my annual income of a bit under £15.000 and I did this. I also benefited from help on this forum about not paying tax on savings interest - that was also really helpful.

I have asked the charity treasurer twice - once in person, when my income was going down, and again by email with no success. He never responded to me but I just hope I'm OK as I did wonder if the amount was within the limit allowed for the tax I pay.

I'm going to be out all of today till quite late but will follow this as it is interesting - and the replies are always helpful, thank you again.

Retired at 55

polymaff

londoninvestor wrote: »

It's the same result either way though.

Not in terms of understanding the process.

Dazed_and_confused

I give about £115 per month to charity, mostly by standing order, and sometimes single amounts to sponser some things. I was encouraged to tick the Gift Aid box as I pay basic rate tax on my annual income of a bit under £15.000 and I did this. I also benefited from help on this forum about not paying tax on savings interest - that was also really helpful.

Well if your annual income is £11851 from pensions and £3,149 savings interest you are going to have a problem as you would only be paying £0.20 tax and would have to pay all but £0.20 of the gift aid tax relief the charity claimed back to HMRC.

On the other hand your annual pension income could be £14,850 with only £150 savings interest in which case you would be liable to pay £600 tax and this might be sufficient to cover the gift aid tax relief.

Retired_at_55

Thanks, Dazed and confused. I have just checked.

My tax code is S269L and, although I receive my State Pension gross, the tax, about £42.54 every month, is all taken from my work pension. Total £14,867 per annum gross from both State and work penstion combined. (Not including savings.) I retired at 55 because of my health.

I want to continue with my standing order of £115 every month but I would need to stop Gift Aid if I was not eligible to let the charity claim it.

I am commited to the causes I support although, when the treasurer did not reply to me, I did not check for myself. If necessary I could ask HMRC - although I would be upset if I owed money because of agreeing to Gift Aid to be claimed if I'm not eligible.

Retired at 55