What is Gift Aid and how does it work with Charities in the UK?

Gift Aid

Gift Aid is a way that charities or Community Amateur Sports Clubs (CASCs) are able to claim back tax for donations made to them by UK taxpayers.

What is a Community Amateur Sports Club (CASC)?

A Community Amateur Sports Club or CASC is a sports club which has either applied to the Charity Commission to be granted charitable status which will entitle it to the same tax treatment as that which is available for charities or has applied to HM Revenue and Customs for the tax relief available specifically for these sports clubs.

Are all charities or CASCs eligible for Gift Aid?

To be eligible for Gift Aid a charity of CASC must register with HM Revenue and Customs.

How does the principle of Gift Aid work in practice?

When a gift or a donation is made to a charity that charity will then be able to claim back the basic tax rate on the gross equivalent. This effectively means that following the introduction of Gift Aid in April 2008 charities can claim back 20% of the amount donated meaning that for each pound donated to that charity an additional 25 pence can be reclaimed back by the charity.

Following on from this a further transitional relief is available which takes into account the fall in basic tax rate meaning that HM Revenue and Customs will pay a further three pence for each pound donated.

This effectively means that for each pound donated to a particular charity they are able to claim back a total of 28 pence from HM Revenue and Customs – a figure that will certainly make a valuable increase to donations provided to charity.

What donations will be able to have Gift Aid claimed back on them?

In order to qualify for Gift Aid the gift made to the charity must take the form or a payment of a sum of money which is not subject to a condition such as repayment made to the UK resident when the gift is made. Accordingly something like writing off a debt will not qualify for gift aid.

What happens if I am stopped in the street by a charity fundraiser and decide to make a monthly donation to a particular charity?

Being stopped in the street by a charity fundraiser is something that will be experienced by most people at some point in their life and is an extremely effective way for a charity to make money. Many people will decide to sign up on the spot and will pledge to make a monthly donation through a direct debit scheme. This is exactly the kind of charitable donation which will enable the charity to claim Gift Aid and may often be used as an example to illustrate just how much difference a continued donation from an individual can make.

Certain issues which Charities may not be aware of when trying to claim Gift Aid

There are however, certain issues which charities must be aware of but in certain situations are not aware of when dealing with Gift Aid; they most often fall into the following two categories:

  1. Gifts of assets to Charity
  2. Admissions to Charity Property

Gifts of Asserts to a charity

When an individual gives a gift of a particular asset to charity the charity is not able to claim Gift Aid upon the sale of the asset. However, there is a way around in which a charity can act as an agent on behalf of that person and sell the gift for them in the hope that the individual will make a donation of the proceeds back to the charity – this concept is referred to as Retail Gift Aid.

Strict Conditions for Retail Gift Aid

However, there are strict conditions to adhere to ensure that the eventual donation following the sale of a gift qualifies for gift aid. These conditions are as follows:

  • That the goods remain the property of the owner until they are sold – it is a condition that it must be clear that it’s the owner who is selling the goods and not the charity of the CASC – it must be made clear that the charity is acting as an agent on behalf of the individual
  • That the owner must have the right to keep all or part of the proceeds of the sale but can choose to donate all or part of the proceeds if they wish
  • That the charity or CASC must contact the potential donor after the goods are sold and offer to pay them the proceeds from the sale of their goods
  • The donor must make a Gift Aid declaration for any donations made

Admissions to Charity Property

Often charities who own specific property will charge an admission fee to view the property – this is often the case when individuals view property owned by the national trust.

What is meant by charity property?

Property is defined as HM Revenue and Customs as included the following:

  • Land or buildings
  • Artifacts
  • Works of art
  • Plants
  • Animals
  • Scientific property

A standard admission price however will not attract Gift Aid as this will only apply to a voluntary gift.

What is meant by a voluntary gift?

A voluntary gift is one which is either 10% or more than the normal admission fee or one which allows admission for at least 12 months.