Charities can benefit from their tax exempt status to receive donations free of tax or to reclaim tax that has been paid on the money donated. The main forms are:

• Gift Aid
• Payroll Giving
• Gifts of shares and property
• Gifts in kind

This is the principal method of tax-effective giving and, since April 2000, Gift Aid can apply to any amount and can apply to regular giving as well as one-off donations. It is also available to Community Amateur Sports Clubs, providing they comply with the regulations and register with HMRC.

When an individual gives money to charity under Gift Aid, the charity can reclaim the amount equivalent to the basic rate of tax. Gift aid can only apply to cash donations, and it should not be used for the purchase of goods or services. So, the purchase of raffle tickets or tickets to fundraising events will not come within Gift Aid. Certain rules apply to the level of benefit donors may receive whilst still giving under Gift Aid.

The charity must obtain a declaration from individuals that they wish the charity to treat their donation as Gift Aid. Gift Aid declarations can be written or oral, and include those made by electronic communications such as email and online donations.

Membership subscriptions may be donated under Gift Aid, providing the benefits provided under the membership scheme fall within the limits above. HMRC disregards annual reports, newsletters, magazines, members’ handbooks and programmes of events giving further information about the charity’s work, when considering what constitutes a benefit. Free or reduced price admission to events does not count as a benefit and needs to be valued.

Gift Aid – 2008 Budget update

Charities will have to start claiming Gift Aid at 25p in the pound from 6 April 2008, rather than the current level of 28p, HM Revenue and Customs has confirmed. The Government will set up a separate top-up fund to meet its Budget promise that charities will be able to continue claiming at 28p until 2011.

HM Revenue and Customs is reassuring charities that there will be no change in how they reclaim Gift Aid, with the introduction of transitional relief. This extra money will be added automatically and not need to be reclaimed separately, although there will be some delay while the legislation behind the Budget goes through the parliamentary process. The Government also announced a raft of measures aimed at helping more smaller charities claim Gift Aid, including an extension of the Institute of Fundraising’s Tax-Effective Giving Initiative.

Companies pay donations to charities gross, including them on their corporation tax return to obtain tax relief. Charities, therefore, do not claim back any tax on company donations. The rules on benefits apply to all companies since April 2006, including public companies. Companies may not use a Gift Aid donation to purchase goods or services from a charity.

Individuals may give to a nominated charity by direct deduction from their pay. The scheme has to be operated by the employer, who, in a similar way to pension deductions, deducts the donation from gross pay before calculating the tax due. The employer then sends the amount of the donation to an intermediary or Payroll Giving agent. The agent collates the amounts sent from different employers and distributes them to the charities nominated by the employees. Agencies may charge an amount for administration and this is usually deducted from the amount distributed to the charity.

There is no minimum or maximum limit on the amount that can be given in this way. Donors may not benefit in any way and should receive nothing in return for their donation. They may receive items of nominal value and information about the work of the charity.

Since April 2000, individuals and companies can get tax relief on shares donated to charities. Where there is any doubt as to whether the shares qualify, then advice should be sought from HMRC Charities. The charity does not reclaim any tax on this form of gift.

Individuals and companies wishing to give property to charities can do so under similar rules to the gift of shares.

This principally applies to businesses wishing to support charities, and can include sole traders, partnerships and companies. Gifts in kind do not qualify for Gift Aid, but, instead, the business may claim relief by deducting the relevant amount from their taxable profits.

The secondment of an employee to work for a charity on a temporary basis qualifies for relief, which is given by allowing the total employment costs as a tax deductible expense.