Gift Aid

Pete38
Pete38 Posts: 1 Newbie
in Cutting tax
I'm a higher rate tax payer. Can someone please confirm my understanding on charitable giving. If I give to a charity via salary directly, every £1.00 given means the charity gets £1.67 (i.e my £1.00 plus the 40% tax I would have paid had I taken it as part of my salary instead). If I give £1.00 via Gift Aid, The charity gets £1.25 and I can then reclaim the difference between my tax rate and 20% on that £1.25 ie. £0.25 which I can then give to charity as well. The charity can then get this grossed up to £0.31. If this is correct, then giving directly via salary ensures the charity gets the benefit of a greater amount (£1.67 versus £1.56) and the system is also so much simpler for everyone. Any help would be appreciated as I thought if he intention was to give the maximum benefit to charity that both schemes would be identical?

Comments

  • Paul_DNAP
    Paul_DNAP Posts: 751 Forumite
    First Post First Anniversary Photogenic Rampant Recycler
    With payroll giving your gift is deducted before any income tax is taken off, and so if you give £1 out of your salary your take home pay will drop by £0.60


    With giving out of your take home pay and then claiming back through gift aid, if you want to give the charity £1 you should donate £0.80 which they can claim 25% extra gift aid on to get £1. You can then claim back another 20% tax back off your £1.00 (20p) which reduces your actual payment to £0.60


    So both ways, each £1 to charity costs you £0.60 - both the same.
    (Although I could be wrong, I often am.)
  • zagfles
    zagfles Posts: 20,323 Forumite
    First Anniversary Name Dropper First Post Chutzpah Haggler
    Pete38 wrote: »
    I'm a higher rate tax payer. Can someone please confirm my understanding on charitable giving. If I give to a charity via salary directly, every £1.00 given means the charity gets £1.67 (i.e my £1.00 plus the 40% tax I would have paid had I taken it as part of my salary instead). If I give £1.00 via Gift Aid, The charity gets £1.25 and I can then reclaim the difference between my tax rate and 20% on that £1.25 ie. £0.25 which I can then give to charity as well. The charity can then get this grossed up to £0.31. If this is correct, then giving directly via salary ensures the charity gets the benefit of a greater amount (£1.67 versus £1.56) and the system is also so much simpler for everyone. Any help would be appreciated as I thought if he intention was to give the maximum benefit to charity that both schemes would be identical?
    They are identical. What you've missed is that you can claim higher rate relief on the extra 0.25 you give as well. But then you'll end up recursively giving the charity your tax rebate - it's far easier just to start with the gross donation. You want the charity to get £1.67:

    By payroll, give £1.67 and that costs you £1.002.

    By gift aid, give 80% of £1.67 ie £1.336, charity gets £1.67, and you can reclaim 0.334, net cost to you £1.002
  • alcachofa
    alcachofa Posts: 13 Forumite
    First Anniversary First Post
    I've only just heard that claiming back tax for gift aided donations is a thing. I'm in exactly the same boat as Pete01 and found this useful.

    Given I've already got charitable donations being sent, with Gift Aid declarations etc, does anyone have any experience of actually claiming the tax back?

    I've had a good read of the gov uk page (can't post links - its at gov.uk/donating-to-charity/gift-aid) they mostly talk about Self-Assessment forms - which I've no need to fill out otherwise. The only other options listed are "asking HM Revenue and Customs (HMRC) to amend your tax code" or asking HMRC for a P180.

    Given I want to reclaim for last year, and change my tax code from now on... do I have to do both? The site isn't particularly clear.

    (Decided this made sense as a continuation of this thread - if that's the wrong option I'll happily make a new one)
  • Asghar
    Asghar Posts: 433 Forumite
    Name Dropper First Post First Anniversary
    alcachofa wrote: »
    Given I've already got charitable donations being sent, with Gift Aid declarations etc, does anyone have any experience of actually claiming the tax back?

    You are a higher rate 40% tax payer, right?
  • alcachofa
    alcachofa Posts: 13 Forumite
    First Anniversary First Post
    Yes, I am.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
    You just need to phone HMRC and explain you need to tell them about your Gift Aid donations.

    Give them the actual amounts from last tax year and an estimate for this year.

    They will review last year and send you a calculation if you have overpaid (or underpaid) tax.

    They will send you an updated tax code for the current tax year to take account of the gift aid.

    Note you do not get an "extra 20%", the gift aid increases the amount of basic rate tax you can pay which in turn reduces the amount of higher rate tax payable. Any tax refund would be based on your particular circumstances. So if you haven't paid much higher rate tax you may not get much of a refund in comparison to the gift aid payment.
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