Avoiding common pitfalls of Gift Aid

Follow up with donors where you believe there to be missing or unclear information from their Gift Aid declarations. If you think there is an opportunity to claim Gift Aid, then take the initiative.

Are you using inexperienced or poorly trained staff/volunteers to process your Gift Aid claims?

Gift Aid is complex and it is worth investing time and resources in correct training and awareness for your staff/volunteers. Give it the attention it deserves!

Can you produce a complete audit trail from donor to donation?

HMRC is increasingly interrogating claims and expects a charity to be able to document the path of a donation, including linking the donor to a valid Gift Aid declaration.

Gift Aid and tax legislation is always changing. Are you up to date with the latest changes?

Latest changes include:

  • Clarification of the availability to claim Gift Aid on waived refunds and loan repayments by individuals in certain circumstances
  • Reduced administration for end-of-year letters for Retail Gift Aid, where the sales proceeds raised are less than £20 p.a.
  • Increases in value thresholds for benefits received as a consequence of the donation
  • Simplification of the Gift Aid Small Donations Scheme (GASDS), making it easier for charities to access
  • HMRC guidance now suggests that the Gift Aid declaration should include the donor’s full name, rather than just initials

Gift Aid opportunities

  • Where your charity has cancelled ticketed events or other fee paying activities and the donor has indicated that they would like to donate the refund to your charity, you should now be able to claim Gift Aid on these amounts. You will need to hold a valid Gift Aid declaration for the individual and meet the other usual requirements for Gift Aid in order to make the claim. Individual donors waiving the right to a repayment of a loan made to your charity may also now attract Gift Aid, subject to certain conditions.
  • Remember that some items ‘given’ by your charity to your donors do not count as a benefit for the purpose of calculating the benefits limits. These relate to items given as a consequence of a donation, i.e. a thank you. One such item is naming rights, which can be very useful for your more generous donors as a way of saying thank you without jeopardising the availability of Gift Aid.
  • If your charity has not yet claimed for Gift Aid or is behind with claims, do not delay, get your claim in as soon as possible. Time limits for claims are:
      • Trusts: four years from 5 April in which the donation was received
      • Corporates: four years from end of accounting period in which the donation was received
      • GASDS: two years
  • Follow up with donors where you believe there to be missing or unclear information from their Gift Aid declaration. If you think there is an opportunity to claim Gift Aid, then take the initiative and make contact with your donors.
  • Take care not to exclude donations where the donor has an unusual address. Claims can still be made for donors living in care homes, houseboats and pubs. For example, HMRC does not expect you to investigate every donor’s address details; if it looks reasonable, make a claim.

For more on maximising your Gift Aid opportunities, please get in touch with Louise Veragoo, Not for Profit Tax Director.

Inheritance Tax: Charitable donations

An often-overlooked subject in relation to tax is the relief available on qualifying charitable Gift Aid donations. Gift Aid payments are made net of 20% basic rate tax. If you wish for a charity to receive a total of £1,000, a physical payment of £800 is required. The charity will then claim back the £200 from HMRC. For basic rate taxpayers, no further adjustment is required, however for higher and additional rate taxpayers, an adjustment is required via the tax return. The tax relief is obtained via the extension of the basic rate band, by the gross charitable donation made, meaning more income is subject to tax at the lower rates.

Any charitable donations made in the current tax year prior to the submission of your tax return can also be carried back to the previous year to accelerate any tax relief. This can be particularly beneficial as there is an interaction between Gift Aid payments and the calculation of your Personal Allowance (your personal allowance tapers by £1 for every £2 you earn over £100,000). For example, an individual with a gross income of £101,000 could make a £800 (net) charitable donation and carry this back. This would mean that they have a reinstated Personal Allowance and have reduced their tax liability by £400. The net cost to the taxpayer would be £400 (£800 cost less £400 saving), however, the charity would benefit from the £1,000 donation (£800 paid plus £200 from HMRC).

In addition to Gift Aid donations, individuals can give shares in quoted companies on a recognised stock exchange to a charity. The gross value of the shares, on the date of the gift, is treated as a deductible payment for Income Tax purposes. No further adjustments are required to the tax computation, or the tax rate bands as above. A gift of shares worth £800 would result in an Income Tax saving of £480, meaning a net cost of £320 to the individual. Please note, in this case the charity would not receive the additional £200 as no ‘Gift Aid’ can be claimed from HMRC on an outright gift. This can be especially useful if you have an asset which, if disposed of on an open market, would result in a CGT liability. When making a transfer of assets to a charity, it is not a taxable event for CGT purposes, increasing any further tax savings.

Budget 2023 included an update to the tax relief on EEA/EU charitable donations. Previously, donations to charities located in the EEA/ EU would qualify for Gift Aid, following the principles explained above. However, to obtain tax relief on donations made after 15 March 2023 (subject to a very few charities which have asserted their UK charitable status), it will be restricted to UK charities only. This change is not just relevant for Income Tax purposes but could also affect your Inheritance Tax (IHT) exposure. If you have any specific donations in your will to overseas charities, please contact Duncan Cleary, or our Private Client team, to ensure that the charity (or charities) will qualify for IHT relief under the new definition.

This article has been taken from our Private Client Summer Briefing 2023. Click here to read more.

HMRC issues ‘One to Many’ notices to charities

HMRC is issuing ‘nudge letters’ to charities.

The ‘One to Many’ approach takes the form of correspondence commonly known as nudge letters. Nudge letters usually state that HMRC holds information on the taxpayer that the letter is addressed to, and are used to encourage taxpayers to review their tax affairs.

Nudge letters are a cost-effective solution for HMRC to communicate with a large number of taxpayers. Letters previously issued either relate to a potential loss of tax that HMRC has identified or, more broadly, are an educational exercise.

This latest nudge letter campaign is an educational letter, helping charities to get their Gift Aid claims on aggregated donations right, together with a reminder of their Gift Aid record-keeping requirements.

Disclosures and penalties

If you find a mistake in your filings to HMRC, disclosing the error or omission before HMRC sends a nudge letter or opens an enquiry will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error, and the length of time interacting with HMRC will be significantly shorter, compared to a full investigation.

A professional tax advisor can guide you through the disclosure process and advise, where applicable, of the penalty mitigation available. We recommend taxpayers immediately seek professional advice if they have found a mistake in their filings to HMRC.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC. Should you have any queries regarding your Gift Aid claims, please do not hesitate to contact Louise Veragoo, Not for Profit Tax Director, or Danielle Ford, Partner and Head of Tax Disputes & Resolutions.

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