The 'tax to cover' on donations rule - possibility of refunds?

Milarky

I could ask the Revenue this - but I'll start here first.

I intend to reclaim tax on savings interest this year (2007/08) - having paid at basic (20%) and not earned my full annual allowance of 5225. But I've also donated to charity and they have claimed 22% tax relief on that lump. In addition I've got company dividends with a 10% (non reclaimable) 'tax credit' paid.

Under the HMRC 'tax to cover provision' is does say:

http://www.hmrc.gov.uk/charities/guidance-notes/chapter3/sectionb.htm

3.9.2 Even though a donor cannot receive payment of non-payable tax credits on dividends paid by UK companies, those credits can be used by the donor to cover the tax reclaimed by the charity on the donation. Tax deducted from bank and building society interest etc., and not repaid, can also be used to cover the tax reclaimed by the charity.

The tax credits I've paid won't cover this year's donation to charity - so that the balance would have to come from my excess savings interest tax. That's fine as far as it goes....

But then it occurred to me - I've been giving under GiftAid in previous years when I have also been receiving company dividends but never sought to claim the tax credits to offset any of the tax refunds claimed by those charities.

Have I missed a trick therefore?

There are two ways the Revenue could apply the 'Tax to cover' rule to include tax credits and GiftAid

1) First exhaust any income tax paid before looking for any tax credits remaining (in which case almost nobody can benefit whose income wasn't just below the personal allowance and the remainder was 100% dividend based)

2) First exhaust any tax credits paid and because the individual more than likely has income on which they have paid tax already and (if PAYE) they will have paid the just 'right' amount of tax, then any GiftAid tax refund claimed by the charity will result in overpayment of tax by the individual and they should be entitled to have their income tax adjusted and so recieve a refund

[Oh dear, I've lost some people...]

By example:

You earn £15345 (PAYE) and let's say the correct amount of tax is £2000 (20% of £15345 -£5345 allowance)

You donate £800 to charity and they claim a refund of £200

But you also receive £900 in dividends and this generates £100 in tax credits

Does this £100 automatically offset the charity's £200 - leaving just £100 to be claimed from your income tax - and thus allowing you to reclaim £100 in income tax?

Thanks

Milarky

Just spoke to a nice chap at Revenue and Customs and the answer is 'no' essentially: dividend tax credits are only taken into account last after other sources are exhausted. It's obvious really, as otherwise advisors would all be telling people to give to charity because they held shares - and to hold shares because they gave to charity - and the Revenue would get 100s of thousands of unwanted claims each year..