Gift Aid - making subscriptions go even further

Raising funds can be one of the most daunting tasks that a voluntary organisation undertakes. One small way to add to your pot is to encourage your subscribers to give their subscription under a scheme called Gift Aid. This Information Sheet gives an overview of the Gift Aid scheme.

What is Gift Aid?

Gift Aid enables UK resident taxpaying individuals and companies to give single gifts of money to charity, and allows these charities to reclaim the basic rate of Income Tax on these gifts. The size of donation that qualified under the scheme used to be a minimum of £250. However, from 6 April 2000 these rules were changed for donations made by individuals on or after that date. Now any donation - however large or small, regular or one-off - to a registered charity will be eligible for Income Tax relief ie the tax paid can be recovered by your charity at the basic rate.

What Gift Aid is not
Gift Aid is not a method of payment. It is a way of giving to charity tax-efficiently. Outright payments to your charity in return for goods or services are not gifts to the charity. The gift must also be a sum of money ie it cannot be made in kind or by loan/debt waiver.

Are there any costs involved?
There are no costs to either the recipient or the donor. Neither does Gift Aid affect regular sponsorship contributions from a donor.

What are the rules?

Taxpayer - donors have to be taxpayers/have paid enough income tax and/or capital gains tax (not just 'tax') to cover the tax refund to the charity. You can get confirmation of this from the donor verbally or in writing.

Charity - the recipient has to be a registered charity

Declaration
Before a charity can reclaim tax on a donation by an individual it must receive a gift aid declaration (in writing, by phone, or via the internet) that they pay enough tax to cover the tax reclaimed by the charity and that the donation(s) are to be treated as gift aid donations. They must give their full name and address, name (or acronym) of the charity they're giving to and a description of the donation(s). It is essential that the description of the donation on the declaration matches the actual donation.

See Sample Gift Aid Declaration.

If the declaration is given verbally it will not be valid unless and until the charity sends the donor a written record of the declaration as well as notification that the donor has 30 days in which to enable the declaration. You cannot reclaim tax on donations covered by oral declaration until you have sent the written record (the donor does not have to return the declaration sent to them).

If the declaration is in writing or given via the internet it does not have to be signed or include a date but it must include a statement that the donor pays enough tax (as above).

Confirmation has only to be completed once for each charity and is valid as long as the donor remains a taxpayer. The donor can specify whether they want only this donation to be treated as a gift aid donation; all donations from the date of the declaration to be treated as gift aid donations until the donor notifies the charity other wise; or all donations since 6 April 2000 and all donations from the date of the declaration to be treated as gift aid donations until the donor notifies the charity otherwise.

Benefits
The benefits the donor is given in return for donations must not be above prescribed limits. The limits are: 25% if the donations in the tax year are up to £100; £25 where donations are £101 to £1,000; 2.5% where donations are £1,001 to £10,000, and £250 where donations are over £10,000.

This rule applies to obvious things such as the right to attend a concert or event at no charge, but sometimes the benefit can arise in less obvious ways and care must be taken. If you offer other goods and services as a result of the donation eg subscription membership, then you will have to assess the value of these. Read the guidelines and seek advice [see contacts below].

The good news is that where a charity provides literature to its donors the Inland Revenue accepts that the value of this benefit is nil, providing the material is relevant and furthers the aims of the charity. This means that newsletters, bulletins, annual reports, journals, members' handbooks and programmes of events will generally carry no value for the purposes of the donor benefit rules.

Audit trail
Charities must keep a copy of all written records as proof - they will have to be able to identify every donation from every donor (ie address, name, taxpayer). Insufficient records will lead to payments being excluded from Gift Aid and the charity will have to repay the tax with interest and possibly penalty charges.

Declaration form
There is no official Inland Revenue declaration form, and charities can design their own as long as they satisfy all the legal requirements. However, Inland Revenue Charities offers a model which meets all the requirements. See Sample Gift Aid Declaration. No signature is necessary from the donor.

Keep administration simple

Note: all administration costs time and money and you may feel that it is not be worth using the Gift Aid scheme for donations under, say, £10.

1. When a donor makes a declaration orally obtain their name, address and whether or not they have paid sufficient tax. Send them a letter and a complete Gift Aid declaration form confirming the details
2. Otherwise ask the donor to complete the gift aid declaration form at the time of the donation eg in the case of subscriptions (doing this at the time is safer as it may be difficult to do it later - the donor may change address, become incapacitated, etc.)
3. Ensure that all details on the declaration are completed accurately. This will help the IR process the Tax claim quickly. A form that just gives "Mr Smith" for the name is insufficient.
4. Once the form has been completed (by the donor preferably) return a copy to the donor for their records. They will require this if they are Higher Rate Taxpayers. Send the original form to the IR so that the Tax can be reclaimed, and keep a further copy locally with any correspondence about the donation.
5. Put procedures in place to send the declaration to all telephone and internet donors, and to people who donate by post or in person and have not provided a declaration. Ensure subscription forms include the gift aid declaration.
6. To minimise paperwork, encourage donors to declare that all future donations (and past donations since 6 April 2000) should be treated as gift aid.
7. Create a system to link all gift aid donations listed in the accounts and on the Inland Revenue tax recovery form to the paper declarations. This is likely to involve reference numbers and codes indicating whether the declaration is one-off or ongoing.

Further Information

Revenue & Customs www.hmrc.gov.uk/charities/index.htm
Chapter 3 on the R&C website covers Gift Aid comprehensively. This can be downloaded (approx.28 pages)It is not as daunting as it first appears.

The Charity Commission www.charity-commission.gov.uk
provides a wealth of information for charities.

NB Deed of Covenant, Company Donations etc
This Briefing does not cover Deed of Covenant, Company Donations or Gifts where the donor might receive some benefit in exchange for the Gift. See the Guidelines on the Revenue & Customs website www.hmrc.gov.uk