Dos and don’ts of using gift aid

If you pay tax, using gift aid when you donate money to a charity is a way of giving that little bit more without it costing you anything. A £10 donation gift aided is worth £12.50.This is because a charity is allowed to claim back basic rate tax on donations made to them.

You may also be approached if you pay subscriptions at your children’s clubs like Scout groups and Brownies or when you visit Museums and Zoos or other attractions where you pay a suggested donation rather than an entry fee.

To check whether or not you can Gift Aid, just multiply the tax you expect to pay in the year by 4. That is the maximum you can gift. For example, if you pay £1000 of tax in the year the maximum you can gift aid is £4000; the charity will then claim back £4000/4 which is £1000.

Ticking the Gift Aid box on a sponsorship form along with your post code gives the charity permission to claim tax back on that occasion only, whereas when you sign a declaration form, it usually allows the charity to claim tax back on all your future donations. Read carefully before you sign.

You need to fill in one form for each charity you donate to and also remember to retract them if you become a nontaxpayer. But beware! If you DO NOT pay tax, DO NOT gift aid your donations. A charity cannot claim back what has not been paid in the first place. HMRC will pursue you, not the charity, for the extra tax!

If you receive tax credits or are a 40% taxpayer, it is worth making sure HMRC are aware of your gift aided donations. Your allowances will be protected because the gross amount of your gift is removed from your total income before they are calculated. This may mean that your allowances are not restricted by as much, or even not at all.

For Tax Credits the gross amount of your gift is deducted from your total income before calculating the Tax Credit due. Whereas anyone who pays tax at the higher rate can claim the difference between the higher rate tax 40% and the basic rate tax 20%. This works by extending the basic rate tax band by the amount of the gross donation.To calculate the gross donation times the actual donation by 1.25.

Reporting donations to HMRC can be done on a Self Assessment form, by telephone on 0300 200 3300, writing to HMRC at Pay As you Earn & SA, BX9 1AS or accessing your Personal Tax account online.

This article is by Tax Help for Older People registered charity no 1102276, offering free tax advice to older people on incomes below £17,000 a year. The Helpline number is 0845 601 3321 or geographical 01308 488066.