Gift Aid

katsclaws

We Gift Aid our charity donations. For Tax Year 2019-20 we won't be paying income tax on salaries but will be paying tax on dividends. Are we still able to Gift Aid our donations.?

BoGoF

You need to pay sufficient income tax to cover the Gift Aid amount claimed by the charity.

katsclaws

Thank you.

00ec25

"tax" on dividends is income tax. Either you have paid enough to cover the gift aid, or you haven't, only you will know.

katsclaws

Thank you. I haven't done our SA Tax returns yet for 18-19 tax year but it's 19-20 tax year I'm thinking about. We have paid enough income tax for 18-19 to cover gift aid.

nmn

The company may be able to give directly which would be more tax efficient.


Alternatively as other say, tax on dividends is income tax.

katsclaws

Thanks nmn, can you explain what you mean by 'The company may be able to give directly which would be more tax efficient. '

00ec25

katsclaws wrote: »

Thanks nmn, can you explain what you mean by 'The company may be able to give directly which would be more tax efficient. '

since you have posted on the small biz thread he assumes the dividends are coming from a company that you control

on that basis rather than gifting from your own personal income (dividends) your company could make the payment direct to a charity and that payment would be an allowable expense against the corporation tax payable by your company.

BUT the charity cannot claim gift aid on that donation

why is it tax efficient? Made up vastly simplified example (note * ignoring the fact that "you" have not paid enough personal tax to cover the gift aid claim amount) and assumes basic rate taxpayer:
paid from dividend rec'd:
company pre tax profits £100
corporation tax 19%
post tax distributable profit £81

personal income: dividend taken £81
dividend tax paid personally @ 7.5% = £6.07 *
personal money left after tax £74.93
gift aid donation 74.93
personal money left after donation £0

charity claims gift aid from HMRC 74.93 x 25% = 18.73 *
charity receives total donation 74.93+18.73 = £93.66

paid direct to charity by company
company pre tax profits £100
donation to registered charity £100
taxable profit £0 corporation tax payable £0
net distributable profit £0

personal income £0

but charity receives total donation £100 (no gift aid claimable)

nmn

katsclaws wrote: »

Thanks nmn, can you explain what you mean by 'The company may be able to give directly which would be more tax efficient. '

Gift aid doesn't change the corporation tax already paid on your dividends. If you have £1 profit in your company you can give this to charity and, if it qualifies, no corporation tax to pay on that so the charity can get the full £1 from the £1 pre-tax profit.


The alternative option (with the company's £1 profit) is to pay corporation tax, leaving 81p for dividend distribution. Then things depend a bit on your personal tax circumstances - but I can't think of any scenario where the charity can get more than £1 through gift-aid from 81p of pre-tax dividend ...


*Edit: crossed with 00ec25. OP should note their example has more tax reclaimed than personally paid; strictly speaking the £94 to charity isn't wholly from the initial £100 of company pre-tax profit

katsclaws

My apologies for posting on the wrong board. Our Company was dissolved a few months ago.
Thank you for taking the time to post. Hopefully your replies will be of use to other posters on this board.