Gift aid has always been a way for individuals to make donations to the charity of their choice and for the charity to benefit where gift aid has been claimed.
By claiming gift aid the charity receives an additional payment from HM Revenue & Customs. For the individual, when they claim gift aid they must be a UK taxpayer and must have paid sufficient tax to cover the gift aid payment. When making a charitable donation it is treated as coming out of net income and is grossed up. For example, for a net donation of £100, the tax is £25, giving a gross donation of £125. It is the charity who claims the £25 from HM Revenue & Customs and the individual is able to receive income tax relief of £25 through their self-assessment tax return or PAYE tax code if they are a higher rate or additional rate taxpayer.
If the amount of relief claimed is more than their tax liability, then the taxpayer will need to pay the difference to HM Revenue & Customs. This can impact non-resident individuals who make donations and claim gift aid, but do not have any UK taxable income.
It is possible that individuals such as pensioners or those on low incomes can find themselves having an income tax liability to pay from their generosity in making charitable donations, as a result of having no taxable income.
During the 2022/23 tax year, Mr Seagull has income from a pension of £12,500, dividend income of £2,000 and interest of £1,000. He makes a net charitable donation of £100 and claims gift aid.
As his total income of £15,500 is covered by the personal allowance for the year of £12,570, the dividend exemption of £2,000 and the personal savings allowance of £1,000, there is no income tax payable. Therefore, Mr Seagull will have an income tax liability of £25 (£100 x 20/80) to pay to HM Revenue & Customs as a result of claiming gift aid on his charitable donation.
If Mr Seagull does not want to end up with a tax bill, he should contact the charity to cancel the gift aid declaration, meaning that the charity will not be able to claim the tax credit from HM Revenue & Customs. He can still make charitable donations, but he should not claim gift aid as there will be no tax advantage in doing this.
Author: Plus Accounting
If you would like some more information on this matter or to discuss your own circumstances please contact our Tax Team on firstname.lastname@example.org or 01273 701200
Date Published: 1 November 2016
Updated: 07 March 2023