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Gift Aid
Gift Aid is an initiative which allows charities, or Community Amateur Sports Clubs, to make the most of peoples’ donations by, in effect, pocketing the tax.
It is worth around £1 billion a year to charities and donors, and it involves the reclamation of the basic rate tax paid by the U.K tax-payer donor, which is 20% from 6 April, 2008. It means that for every £1 paid by a donor, some 25p extra can be claimed by the charity.
The Gift Aid money is reclaimed by the charities from the HM Revenue & Customs (“HMRC”) who administer the scheme and check that charities and donors are completing the necessary forms.
Additionally, to compensate for the fall in basic tax rate from 22% to 20%, HMRC will automatically pay a charity a further three pence, making the total benefit 28p on a £1 donation. This compensation for the drop in tax rate will last until 5 April, 2011.
If the donor is getting hammered by the higher rate tax, then the donor can also claim back 25p for every pound they spend. So everyone’s a winner.
There are rules about what qualifies as Gift Aid – it can only be claimed on money gifts (including cash, cheque, credit card, debit card, direct debit, standing order, postal order, or bank transfer) from individuals, partnerships, or sole traders. Sterling, or any foreign currency is acceptable.
Company donations are not acceptable, nor is money that comes with waivers, conditions, or caveats (including when the payment of money is not a donation, but a payment for a service).
In return for their generosity, a charity can give its donors tokens of their appreciation, provided they are modest in value. Modest is defined as a range of percentages and values, depending on the size of donation and the period in which it was exercised. When donating £10,000, for example, up to and including 5 April, 2007, the benefit must not exceed £250.
The key thing to remember, is that the donor must not receive a benefit from the donation.
The definition of donation does have some flexibility when being judged under the Gift Aid rules, including viewing bids at a charity auction as a donation.
The tax is claimed by the charity in the same way as it claims other tax relief and the charity must be recognised by HMRC for tax purposes, and someone in the charity has to be nominated to claim the tax back.
And as with all governmental schemes, all the paperwork must be kept assiduously by the charities, including the key fact that they have told the donor that they must pay at least as much UK tax as the amount the charity reclaims, within the tax year they donate.
So, they we are then – Gift Aid is a good thing, so when they ask you if they can reclaim the tax, don’t give that harassed look – sign on the dotted line and give them the extra 20%, because they deserve it
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