Gift aid question

curtis122

Can someone please explain gift aid in regards to how may/may not effect me. I've even read the gift aid section on this site but I'm still not fully 'getting it'

I've had a email from a charity I gave some donations to, never had one before, I thought it was just going to say, your donations have raised X amount thanks but then went into talking about tax and my tax. This is below -

I am pleased to tell you that the proceeds from selling your goods have raised a further £31.62 (net of commission and VAT).  To donate this sum to our charity you need do nothing further.  This will allow us to reclaim an additional £7.90 in Gift Aid in the tax year to April 2027.

Please also contact us within 21 days if:a) you expect to pay less than £7.90 (cumulative Gift Aid claimed in this tax year by us) in UK Income and/or Capital Gains Tac in this year to meet the Gift Aid amount claimed back by our charity

How does this effect me? Reading it the first time its like they were saying it was going to cost me to give them the extra.

I know there is a Charity field on the Tax return, do i need to enter an amount on my tax return, would it be the £31.62 or the total with the 7.90. I'm also reading its only if your a Higer rate tax payer you can enter it.

Woodstok2000

It costs you nothing extra now - the charity are just letting you know that they can claim extra because you ticked the Gift Aid option. They have to let you know because you can only allow gift aid if you expect to pay more than that amount in income tax or CGT in the year.

If you are a higher-rate (40%) or additional-rate (45%) taxpayer in the UK, you can claim back the difference between the basic rate of tax (20%) and your highest tax rate on the gross value of your charitable Gift Aid donations, and you would enter the full amount including gift-aid (unless the form states otherwise - I can't remember if HMRC work this out themselves). Either way, the rebate is worked out on the full amount with the gift aid balance included.

• For the charity: When you donate £100 under Gift Aid, the charity reclaims 20% basic rate tax from HMRC, turning your £100 into a £125 gross donation at no extra cost to you.
• For a 40% higher-rate taxpayer: You can claim back 20% of the gross £125 donation (which equals £25). Your effective cost for a £125 donation to the charity is just £75.
• For a 45% additional-rate taxpayer: You can claim back 25% of the gross £125 donation (which equals £31.25). Your effective cost is £68.75

curtis122

Thats the bit I'm confused with, if you can claim a rebate, thats saying to me its costing me something.

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/comment/82144829#Comment_82144829

The gift aid effectively reduces your income, to make things simple the charity claims the basic rate 20% but if you are a higher rate tax payer you've already paid 40% tax on that income so you can reclaim the difference. Its not costing you something, its give you back some of the tax you have already paid…. if you are a basic rate then its neutral as the charity already reclaimed the tax.

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/82144884#Comment_82144884

This is the easiest way to think about it. I always found a worked example helpful.

Imagine you earn £1000, and you pay 20% tax (£200). If you give £100 to charity with gift aid, it reduces your earnings to £900. That means your tax bill is only £180 (20% of £900). That extra £20 you saved in tax goes to the charity as their gift aid payment. It costs you nothing as it comes off your tax bill, not our income.

Now imagine you earn £1000 but you are a 40% taxpayer. You've paid £400 tax. If you give £100 to charity with gift aid, it reduces your earnings to £900. That means your tax bill reduced to £360 (40% of £900). The £40 reduction in your tax bill is split equally between the charity, who claim £20 as their gift aid payment, and you get the other half and can claim £20 back from HMRC via self-assessment. It still costs you nothing.

DRS1

The only way this is going to cost you is if you pay less than £7.90 in tax for the relevant tax year. That is because your tax bill has to be high enough to cover the gift aid relief claimed by the charity.

Maybe they are asking you to contact them to stop them making the claim if you haven't paid enough tax.

SiliconChip

@DRS1 "Maybe they are asking you to contact them to stop them making the claim if you haven't paid enough tax."

It does sound like that may be the case, although I don't recall any charity ever asking me that. However, in the tax year after I stopped work and before I started to receive state pension I knew I would pay only a very small amount of tax so I did contact the charities that I made regular gift aid donations to in order to advise them that they couldn't claim, then contacted them again the following year to start claiming again.

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/82145190#Comment_82145190

Presumably the OP gifted items that were then sold. Since the amount raised couldn't be known at the time the items were donated then the amount of Gift Aid would also not be known. The email is telling OP the actual amount and the Gift Aid impact.

Given the small sum involved I would just ignore it. There is a vanishingly small chance of any comeback even if the OP is a non tax-payer and, unless they already submit a self assessment return each year, it would hardly be worth informing HMRC and claiming the small rebate if they were a higher or additional rate tax payer. As others have said, for a basic rate tax-payer there is no impact whatsoever.