This is the second instalment of a two-part series where I review the ins and outs of Gift Aid for charities.
Last time in Gift Aid: The Practicalities I considered:
- Establishing registration with HMRC
- Gift Aid declarations for your donors and record-keeping
- Completing a Gift Aid return
This article looks at:
- Eligible donations
- Calculating what is due from HMRC
- Pitfalls – things to look out for
- What happens if you overclaim?
What is Gift Aid?
Gift Aid is a scheme enabling registered charities to reclaim tax on a sum of money donated by an individual who is a UK taxpayer, effectively increasing the amount of the donation. Using Gift Aid means that the taxman will add 25p to every pound a donor gives.
The term ‘sum of money’ comprises payments made by:
- Direct Debit
- Credit/ debit card
- Postal/ standing order
- Foreign currency
In other words, there must be cash changing hands.
A charity can reclaim Gift Aid from HMRC on eligible donations by submitting a repayment claim form electronically via their own HMRC Online Gateway account. For each donor, the charity must be able to demonstrate that they have a signed Gift Aid declaration form on file. For further information and guidance in these areas please see Gift Aid: The Practicalities.
A charity needs to be careful that they do not claim Gift Aid on certain funds received. This includes:
- Donations from companies – Gift Aid can only be claimed in relation to donations from individuals
- Donations made via payroll giving, such as GAYE
- Loans to the charity which no longer require repayment
- Money from charity cards or vouchers (e.g. Charities Aid Foundation or CAF vouchers)
- Those received prior to receiving your charity registration number
- Money received from an individual in return for a certain level of ‘benefits’
- ‘Minimum donations’ where this is no choice around payment – a donation after all is a ‘gift’
- Payments for goods or services
- Membership fees of Community and Amateur Sports Clubs (CASCs)
Calculating what is due from HMRC
A charity can claim Gift Aid on an eligible donation in the four-year period from the end of the accounting period in which it was received. This is:
- the tax year (6 April to 5 April) if you’re a trust
- your accounting period if your charity is a community amateur sports club (CASC), a Charity Incorporated Organisation (CIO) or a limited company
The exception to this is claims on cash donations under the Gift Aid Small Donations Scheme. These must be made within two years of the end of the tax year in which the donations were collected.
Gift Aid Small Donations Scheme (GASDS)
In recognition that it is not always practical for some charities to obtain a signed Gift Aid declaration form at the point that every donation is received (for example in to a collection pot in a public place), HMRC have in place the Gift Aid Small Donations Scheme, or GASDS as it’s known.
To be eligible for GASDS your charity or CASC must have claimed Gift Aid:
- in the same tax year as you want to claim GASDS
- without getting a penalty in the last 2 tax years
- in at least 2 of the last 4 tax years (without a 2-year gap between claims) if you’re claiming on donations made before 6 April 2017
To be noted are some features of the scheme, including the following:
- Claims can only apply to cash donations of no more than £20 in value (including contactless card donations of £20 or less collected on or after 6 April 2017)
- Membership fees are ineligible
- The maximum amount which can be claimed in one tax year (from 6 April 2016) is £2,000 or £1,250 for earlier years.
Pitfalls – things to look out for
Donors who are not UK tax payers
Occasionally, you may come across a donation which had been ‘Gift Aided’ at the time of the gift but which turns out to be ineligible. The classic example is where a donor, with best wishes at heart, ticked the box to confirm that they were a UK taxpayer when in fact they are not.
If a claim has been made in respect of such a donation then HMRC will expect full disclosure and for the charity to repay the tax claimed.
A client of mine recently had to deal with exactly this issue regarding a donation of £5,000 made in the previous tax year. The problem there was that the Finance Manager was on maternity leave and the COO couldn’t find the letter from HMRC with repayment details on it. Three phone calls to HMRC later (over several weeks) and even they couldn’t shed any light on how to repay £1,250 to them. Their response? “We will write to you again however we are currently experiencing high volume caseloads, please don’t call us again”.
It comes to something when HMRC won’t oblige a charity trying to pay them money, six months down the line!
Donor benefit rules
Occasionally your charity may give your donors something in return for a donation (typically an item or service), by way of a thank you – for example a copy of your newsletter.
HMRC state that the value of a benefit is always the value to the recipient. The following table details HMRC’s limits around the maximum value of a benefit permitted, before it starts to affect the Gift Aid eligibility of the donation:
Below are some examples of how you might value perceived benefits to a donor:
- Normal sales price, if usually openly sold
- Events – cost to the charity per attendee (if the equivalent market value is not available re ticket prices)
- Life membership – assessment of typical benefits over the first ten years
- Discounts – average take up by the membership, quantified
HMRC provides further guidance around organisations which may find themselves covered by ‘special circumstances’ for Gift Aid purposes, as follows:
- Membership fees
- Entrance fees – to charity property
- Fundraising events
- Charity auctions
- Retail gift aid scheme
Speak to your accountant and advisors if you feel that any of the above apply to you to ensure that you are complying with the rules. They may be able to carry out a mini Gift Aid ‘audit’ for you.
What happens if you overclaim?
If you accidentally overclaim on a Gift Aid return, don’t panic! You have some options available to you:
- Complete the below box on your next Gift Aid return form (if declaring manually via Gateway)
- You may find that HMRC get in touch with you first in writing, if they spot an overclaim before you do, providing guidance on what to do next.
- Contact HMRC’s Charities Helpline on 0300 1231073 for further guidance.
I hope this is useful to you however, should you have any further queries please don’t hesitate to get in touch, or speak to your own advisors.
Happy Gift Aid claiming!
As published by Accounting Web