Prime Time Financial

Many people like to give to charities, and part of getting the most out of our finances is giving effectively. So here are few ways to make sure that your giving is as effective as it can be. Note: when we talk about charities they have to be registered as such to gain tax benefits.

First of all it is worth identifying for yourself what charitable concerns you have. It is far more effective for a charity if you give a regular amount - and potentially support them in other ways as well - rather than drop a few coins into a collecting tin occasionally. Much as we would like to, none of us has the resources to support every charity there is.

One of the best ways to give to charity is also the simplest - Gift Aid. Your gift is treated as a net amount on which you have already paid basic rate tax. The charity is then able to reclaim that basic rate tax adding to the value of your donation. All you have to do is sign their form to say that you want to give in that way - a form which only has to be completed once.

If you are a higher rate taxpayer (40%) or “additional rate” (50%) then you need to declare your gifts on your self-assessment tax return (or the P810 Tax Review form from HMRC if you don’t do a tax return), and the tax you have paid on that donation over and above the basic rate can be reclaimed by you.

For example: you give £100, the charity reclaims basic rate tax on that - an additional £25. And as a higher rate taxpayer you could reclaim an additional £25. See Charity Giving - Other Tax Opportunities for more.

One thing to look out for with Gift Aid - you do need to make sure that you have paid enough tax in the year to cover the donation. That can be either Income Tax and/or Capital Gains Tax. Otherwise HMRC may ask you to make up any shortfall (the tax “rebates” they have paid out to your charities). If you haven’t paid enough in the current year then you can ask HMRC to carry back a donation as if it were paid in the previous tax year.

More detail is available on the HMRC website at: http://www.hmrc.gov.uk/individuals/giving/gift-aid.htm

If your employer operates a payroll giving scheme, you can achieve a similar result as Gift Aid. In this case, the donation is made gross (before any tax is deducted).

See: http://www.hmrc.gov.uk/individuals/giving/payroll.htm for more on that.

Last reviewed 25th March 2011

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