In this episode, we delve into the intricacies of the Gift Aid scheme and its profound impact on charitable giving. Since its inception in 1990 in the UK, Gift Aid has revolutionized the way individuals contribute to charities and Community Amateur Sports Clubs (CASCs), providing essential financial support for various causes.

Overview of Gift Aid Scheme

Gift Aid serves as a crucial mechanism for channelling funds to deserving organizations. By allowing charities to claim an additional 25% in tax relief on donations, the scheme significantly bolsters their financial resources. This vital support enables charities to expand their programs, reach more beneficiaries, and make a lasting impact on society.

How Gift Aid Works

When an individual makes a donation, not only does the charity receive the initial amount, but they can also reclaim tax on that donation. For every £100 donated, the charity receives an additional £25 in tax relief, making each contribution even more impactful. This incentive encourages individuals to give generously, knowing that their donations will go further in supporting the causes they care about.

Compliance and Tax Implications

To ensure

compliance, donors must have paid an equivalent amount in income or capital gains tax. Additionally, it's imperative that no financial benefits are received in exchange for donations, as per HMRC regulations. By adhering to these guidelines, both donors and charities can uphold the integrity of the Gift Aid scheme and maximize its benefits.

Declaration Requirements

Charities must maintain accurate records and obtain declarations from donors confirming their taxpayer status. This ensures transparency and accountability in the Gift Aid process, providing reassurance to both donors and regulatory authorities. By maintaining proper documentation, charities can streamline their operations and focus on their core mission of making a positive impact in their communities.

Benefits to Individual Taxpayers

Higher-rate taxpayers stand to benefit the most from Gift Aid, as they can claim a tax reduction of 20% of the donation value. This incentivizes individuals to contribute more generously to charitable causes, knowing that they can also receive tax benefits. By leveraging Gift Aid, taxpayers can maximize the impact of their charitable contributions while also reducing their tax liabilities.

Limitations and Exclusions

While Gift Aid is a powerful tool for driving charitable contributions, it's essential to note its limitations. For instance, payroll giving does not qualify for Gift Aid benefits, highlighting the importance of understanding the scheme's intricacies. By being aware of these limitations, donors can make informed decisions about how to maximize the impact of their donations and support their chosen charities effectively.

Power of Gift Aid for Charities

Despite these limitations, Gift Aid remains a cornerstone of charitable fundraising efforts. By extending their reach and maximizing contributions, charities can make a tangible difference in their communities. The additional funding provided through Gift Aid enables charities to implement new initiatives, expand existing programs, and address pressing social issues more effectively. By harnessing the power of Gift Aid, charities can amplify their impact and create positive change on a larger scale.

Conclusion and Call to Action

Understanding the nuances of Gift Aid empowers us to make informed decisions about charitable giving. Let's continue to support causes close to our hearts and spread awareness about the transformative power of Gift Aid. By working together to maximize the impact of our donations, we can create a brighter future for all.

The Gift Aid Scheme was initially introduced in the United Kingdom in 1990 - 1st October, if you want to be precise. Since its early days where the scheme was limited to cash gifts of 600 pounds or more, it has grown such that in the 2022-23 year, 1. 9 billion, that's a lot of zeros after that, was given to charities via the Gift Aid scheme.

In this week's I Hate Numbers podcast, I'm going to outline what the Gift Aid Scheme actually is, how it operates, what the benefit, and yes, there are benefits in tax terms for the individual giver, how charities benefit by being part of that Gift Aid landscape and there's a couple of compliance things just to be careful of. In future episodes, I'll expand more so how gift aid can be used as a very powerful tool in your toolkit for tax effective giving.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Now, the 1st October 1990, Gift Aid was rolled out, introduced by the Finance Act 1990. Since those early days, it has grown significantly. And, as I stated at the beginning, in the year 22-23 tax year, 1.9 billion was gifted via Gift Aid. And in addition, 700 million pounds plus was gained by additional tax relief to higher rate and additional rate taxpayers.

More of that later on in the podcast. Initially, I want to explore what Gift Aid actually is, and I'm going to throw a few numbers in your direction. First of all, we have two parties that are involved here. We have the charity or community amateur sports club. They are also entitled to receive benefits through the Gift Aid Scheme and the donor, and the donor in this case is an individual. Now, if I as Mahmood, donate 100 pounds to a charity of my choice, that charity receives my donation of 100 pounds, and in addition they can claim gift aid, equivalent to 25% of the value of that donation. So once the claim is made by them, they will receive a total of the 100 pounds initial donation plus the 25 pounds tax that's being claimed back,

that's 125 pounds in the coffer. That's not a bad result. This scheme is not available to companies. So if the I Hate Numbers company donated a hundred pounds to a charity, which is perfectly entitled to do, the charity would receive a hundred pounds. They wouldn't be able to claim any additional tax on top of that because the donation has not come from an individual giver. Let's talk about compliance and just to make sure that we're very careful when that donation is actually made. Now the key thing is the individual who makes that donation must have paid the equivalent in income or capital gains tax to the value of the tax that's being reclaimed by the charity.

So if I refer back to the earlier example, 100 pounds donation is made by me. The charity is entitled to claim 25 percent of that donation. In addition, that's 125 in total, 25 is effectively the tax reclaim. I, as the individual donor, must have paid the equivalent of 25 pounds in tax during the year of the donation.

Now that tax could have been paid through PAYE on my salary or wages, it could mean income tax that I paid on my rental profits, my business profits, or it could be capital gains tax that's been incurred on the sale of, for example, investment properties. But the key thing is, I've got to have paid the equivalent amount of tax.

If not, HMRC will come back to me as the individual giver and reclaim that tax component from me. And it's not unusual for those individuals who feel very generous, who want to make donations to charities, haven't paid any tax in that year they will be assessed on that tax component. So just be very careful folks.

Another thing to bear in mind is, it's called a donation, so therefore there mustn't be anything received back by way of value from the charity. Thank yous are perfectly acceptable. Certain schemes, like memberships, where the individual member receives valuable benefits from the charity make the subscriptions non gift-able, if that's an expression, if not I've just made one up there. You know, there are complexier things called donor benefit rules, but in general terms the individual giver must not receive anything of financial value back from the charity.

Appreciation, acknowledgement is thanks, but if there's an equivalent value that exceeds certain thresholds, that gift is negated and it's not gift aidable. It must be a gift of cash, nothing received in exchange, of value. Again, there is a diminish limit, which I'm going to expand on in future episodes. But for now, I want to establish the framework in which we operate.

While we're talking about compliance folks, let's carry on with a little bit more compliance. Now, it's essential and really important for the charity when it's receiving those donations that it must have a declaration on file from the individual giver that they are indeed qualifying taxpayers. If not, HMRC reserve the right and they are looking at these claims more vigorously, I would say, to say if the compliance isn't there, the charity will have to pay the money back.

So again, ideally, a written confirmation declaration is ideal. If somebody donates that money and you're unable to get that rent declaration and there is again a de minimis limit, then sending an email back to the donor confirming their status, confirming the gift, be a useful substitute. So each charity that you donate to, you must give a decoration. Now the good thing is folks, by the way, you can actually look and we'll be talking about tax in a few moments, you can look at donations for the last four years as well.

There is a cap, by the way, on the donations that you make as an individual and as long as they're not more than four times what you paid in tax in that year, then those donations qualify for gift aid. Let's talk more now about the benefits to the individual taxpayer. Now in my experience, people donating to charities aren't driven by financial savings or tax savings.

So for me, it's a good positive consequence of donating to a charity or a CASC, a community amateur sports club, that you can actually get some tax benefits. Now if you are what's called a basic rate taxpayer, where approximately your total income for the year is up to and including 50 to 70, then there's no additional tax breaks for you. However, if you are what's called a higher rate taxpayer, that means your income, before personal announces, is over the current threshold of approximately fifty thousand odd pounds, fifty to seventy if you want to be pedantic, then you'll be paying tax at forty percent. Now if you make a gift aid donation, so if we take that same 100 pounds that I’ve donated and my income is, let's say a hundred thousand pounds, some of that income will be taxed at forty percent. Now, the benefit of making that gift aid donation, you increase the bar, you increase the limit on which you pay basic rate tax.

Now, essentially what that means is, as a higher rate taxpayer, I can claim a tax reducer, a tax refund, reduce my tax bill, take it which way you wish, by 20 percent of the value of that donation. So if I make a donation of 100 pounds, the equivalent is 125 pounds when the charity adds on the tax component, which is calculated at basic rate, and I as the higher rate taxpayer can claim a reduction essentially of 25 pounds and that's 20% of the 125. Now if you're an additional rate taxpayer, by the way, then that rate goes up a little bit more and you can claim 31 pounds 25.

Don't want to say claiming it back, if you're doing a personal tax return and you've got Gift Aid, it means essentially you're going to be saving tax on that calculation. If you're paying tax through PAYE and no other income, make that Gift Aid declaration and you can get a tax refund. And as stated earlier folks, you can go back up to four years, if you've found that you've made those donations and you haven't claimed for them

do so accordingly. A couple of last caveats really to add now and things to be careful of. Gift Aid does not allow, a few things to note - Gift Aid is not eligible on what's called payroll giving. So if you donate to charity for your payroll, you're already getting the deductions, the reduction of a tax through the payroll system

gift aid does not apply to that. Again, gift aid is a very powerful scheme. It can be extended to a whole manner of things from fundraising activities to collections in the streets. Again, if the documentation is there, then you can do that, and you really extend the amount of extra money you raise as a charity.

The declarations can be very light touch, we're not talking erroneous obligations placed on a charity, but be aware of that. And for tax effective giving, it can be a really powerful thing. As I said earlier on in one of the statistics here, if we look at 22-23 year; 1.6 billion in Gift Aid was paid to charities and that's nine zeros by the way folks and 740 million pounds was claimed by way of what's called higher rate relief. Folks, I hope you found this useful.

I'd love it, if you could share with those who you feel will benefit. Let me know your thoughts and obviously I’d love if you find the podcast useful, then give a review that always helps extend the reach and out there. And until next time folks, happy gift aiding.

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