What Is Gift Aid & How Does It Work?
What is Gift Aid? In the UK, Gift Aid is a tax incentive that encourages individuals to donate to good causes via tax-effective giving. Introduced as part of the Finance Act way back in 1990, Gift Aid to date has helped thousands of charities generate additional funds for their cause.
While cash or contactless donations are among the most common ways to give to charity, direct debits account for the largest proportion of money donated to charity. In 2016, Gift Aid was added to 52% of the total value of donations, amounting to an extra £1.16bn donated to charity through the Gift Aid scheme. However, whilst the majority of the public have heard of Gift Aid, not everyone is certain of how it works. So, we’ve pulled together a comprehensive article outlining exactly what it is and how it benefits charities.
How does Gift Aid work?
If you pay UK income tax, and you’re making a donation – it’s simple. Just complete a short declaration stating that you are a UK taxpayer. After making this declaration, the value of any cash donation you have made to a charity will increase by 25%. Sound like free money?
Actually, the charity is reclaiming the income tax paid on that ‘gift’ from the government, at no extra cost to you.
If that bit sounds simple, it gets a little more complicated when you bring different tax-rates into the equation.
For a basic-rate taxpayer, this adds up to 25% of the value of the donation under the Gift Aid scheme. For example, if you donated £100 to charity, your £100 will be treated as a gift that has been made after tax has been deducted at the basic rate tax, so the total value of the gift would be £125
The charity can then claim this 20% of the basic rate tax back on your donation (£125 x 20% = £25).
Think of it as giving charities an extra 25p for every £1 that you donate, without you having to give any more. Effectively, this means that charities are able to get more from each donation to put towards good causes.
For higher-rate taxpayers it’s a little different. If you pay above the basic rate for tax, you can claim back the difference between the tax rate you pay, and the basic rate on your donation. For example, as a higher-rate taxpayer, you’ll pay 40% tax. This allows you to claim back 20% of your gift, so for a £100 donation, under the Gift Aid scheme £125 will go to the charity of your choice, while you can personally claim back £25 (£125 x 20%). Not too bad, hey?
You can also decide to sign up to a separate Gift Aid scheme for charity shops. This allows charity shops such as Oxfam to claim Gift Aid on the amount of money made from your donated items such as clothes and books. All you have to do is you sign a declaration form in the shop when you bring in your bags of donated goods, then as soon as any of your items are sold, the charity gets back 20%. When you donate online, you declare Gift Aid for your donation by ticking the Gift Aid box, which is the same as completing a Gift Aid Declaration Form.
Common Gift Aid FAQs
Do you only have to complete one Gift Aid declaration form?
At the moment, for every new charity that you want to donate to, you must complete a separate Gift Aid declaration form. You can request a form from each of the charities. However, there are companies such as our partner Swiftaid, who automatically add Gift Aid to all your digital donations, saving you from completing different declaration forms for every charity.
What about previous donations?
When making your declaration, you can include all the donations you have made to that specific charity in the last four years. All donations will qualify for Gift Aid unless they are more than 4 times what you paid in tax for that tax year (6 April to 5 April). You must tell the charity about any tax years when you did not pay enough tax, or if you stop paying sufficient tax at any point.
Can you donate as a group?
Gift Aid can only be used for donations by individual donors. For example, if you put your spare change along with a friend’s into a charity collection bucket, you would have to each make a Gift Aid declaration for the money you donated. The charity would not be able to claim Gift Aid on the combined donation without two declarations
When are donations not eligible for Gift Aid?
There are some circumstances under which a charity cannot claim Gift Aid on your donations. As mentioned above, this includes donating as a group, but Gift Aid can’t be reclaimed on donations given on behalf of someone else or for a company. It also can’t be claimed on donations that were given to family members or friends participating in an event where the charity is contributing to their costs, or if the donation was made in return for goods or services.
At GoodBox, we are passionate about finding ways to help charities make the most out of their fundraising. Serving as a single point of entry to a pioneering fundraising platform, we help charities of all sizes, from the household names to local organisations, digitally adapt. We started with our contactless donation tech, allowing charities to keep up with a society that is increasingly becoming cashless and technologically integrated. But we’re always looking for ways to help charities digitally evolve. There are endless possibilities for ways that digital technology can help the charity sector, and we’re determined to explore all of them.
That’s why we are always on the hunt for other innovative companies who want to streamline how charities operate, just like us. Our friends over at Swiftaid help charities boost their donations with minimal effort through their automated Gift Aid solutions. Their software allows charities to claim Gift Aid automatically on digital donations that have been made using technology like our contactless donation devices, as well as direct debits and SMS donations.