Maximise Your Charity’s Income This Christmas

The Christmas season is in full swing and many charities will have started work on their Christmas appeals. But how to you make sure that your charity is making the most of its Christmas appeal income? The short answer is Gift Aid!

How Will Gift Aid Benefit My Charity?

When your charity successfully submits a Gift Aid repayment claim to HM Revenue & Customs (HMRC), the charity can receive 25p per £1 of eligible donations i.e. for donations amounting to £100, your charity could receive £25 from HMRC. So, it is worthwhile considering submitting Gift Aid claims where possible in order to boost your charity’s income!

That Sounds Great: How Do I Claim Gift Aid?

Before you can start claiming Gift Aid your charity must be recognised as a charity by HMRC for tax purposes: it is not enough to merely be registered as a charity with the Charity Commission or OSCR. Once you have been granted charitable status for tax purposes from HMRC, you can register for a Government Gateway account and start to make Gift Aid repayment claims online.

What Donations Can I Claim Gift Aid On?

Any Gift Aid repayment claim must be based on valid donations. These are “donations of a sum of money” by individuals only who have paid or will pay UK tax. This includes contactless donations which are banked in the UK. The following conditions must also be met for donations to be eligible for Gift Aid:

  • There are no conditions for repayment of the donation;
  • The donation is not made via Payroll Giving;
  • The donor will not get a deduction from their income for the donation;
  • The donation is not part of an arrangement for the charity to purchase property; and
  • The benefits (if any) received by the donor do not exceed the statutory limits.

Furthermore, the charity must also have:

  • A valid Gift Aid declaration made by the donor which covers the donation;
  • Evidence that they’ve explained to the donor the personal tax implications of making a Gift Aid donation (this can be on the declaration); and
  • An audit trail linking the donation to the donor and their declaration.

What If I Don’t Have A Gift Aid Declaration?

Don’t panic! You still might be able to claim Gift Aid through the Gift Aid Small Donations Scheme (GASDS). As with Gift Aid, GASDS repayment claims must be based on valid donations. These are cash and contactless donations of up to £30 collected and banked in the UK. Charities cannot claim under GASDS on donations received by companies or where they hold a valid Gift Aid declaration for the donation. The following conditions must also be met for donations to be eligible for GASDS:

  • The charity has been in existence for at least two complete tax years before the year in which the claim is made;
  • Successful Gift Aid claims have been made in two of the previous four tax years, with no more than a year between the two years in which a claim was made;
  • There have been no penalty charges on Gift Aid or GASDS claims for the year in which the claim is made or the previous year; and
  • The charity has made successful Gift Aid claims on donations received in the same tax year amounting to at least 10% on the amount of small donations included in GASDS claims.
  • Any top up payments under the GASDS are subject to a maximum small donation limit of £8,000 per tax year.

A Word Of Warning

Special rules apply when claiming Gift Aid on donations where your charity gives donors an item or service in return for the donation. Special rules also apply to community buildings under the GASDS.

How Can We Help?

Our experts can assist with anything from preparing and submitting Gift Aid and GASDS repayment claims to giving advice on Gift Aid and GASDS in general and for specific donations. Please contact us on charities@chiene.co.uk.

Charity Commission recommends overhaul of UK charity tax system

In this blog series, Catriona Finnie, charity tax expert at Chiene + Tait outlines the key findings of the Charity Tax Commission report into the current charity tax system and outlines how the recommendations could impact charities in the future.

Blog 1 – Gift Aid and Business Rates Relief

The Charity Tax Commission has published its report into the charity tax system. The last review of the charity tax system took place 20 years ago and this latest report had set out to assess whether the system remains fit for purpose. Perhaps surprisingly, the Commission has found it difficult to gather sufficient data and research about how the tax system currently operates and, as a result, it has been limited in its ability to make recommendations.

Despite this, the report stretches to 68 pages outlining an array of short-term reforms and long-term recommendations. If you don’t have a spare few hours to read the report, we have summarised the key recommendations which will be discussed over the next 3 blog posts.

 

Short Term Reforms

Gift Aid

If you have ever made several Gift Aid donations to different charities, you will have had to complete multiple Gift Aid declaration forms (one for each charity you donate to). The Commission proposes setting up a Universal Gift Aid Declaration Database (UGADD) to overcome this administrative burden. The UGADD will store Gift Aid declarations made by all donors. Under this system, donors will be able to donate to multiple charities whilst only completing one Gift Aid declaration. Charities will be able to log into the UGADD and search for a donor by searching the donors’ unique identification number (this could be anything from the donor’s national insurance number to a specific Gift Aid card number). The Commission believe that technology is such that this system is now both technologically and economically feasible.

Currently, higher and additional rate taxpayers can claim tax relief on Gift Aid donations they make to charities through their own Self-Assessment tax return. The Commission recommends that this additional tax relief is redirected to charities. You may wonder how this will work in practice, especially as some taxpayers (the self-employed for instance) may not know what their tax rate will be at the point of making a Gift Aid donation. The Commission anticipates that the UGADD will assist, as will the ability to make retrospective Gift Aid donations.

Promotion of Gift Aid and donor awareness via the following:

  • Via literature that can be sent to the general public with annual correspondence from HM Revenue & Customs, along with videos and other forms of media.
  • Government should consult with the charity sector in order to provide guidance on the audit trail requirements for text donations.
  • Review how emerging technology can make Gift Aid administration easier and more efficient.
  • Increase accessibility and reduce administration for the Gift Aid Small Donations Scheme. The Commission states that possibilities include removing the matching requirement and increasing the amount that can be claimed under the Small Donations Scheme as well as including text donations within the scheme.
  • Review corporate Gift Aid rules to ensure it continues to work to maximise the amounts received by charities.

Business Rates Relief

A common tax planning tool used by charities that wish to undertake non-charitable trading is to set up a wholly owned subsidiary. The trading subsidiary will undertake the non-charitable trade activities and then Gift Aid its taxable profit to its charity parent. This structure allows charities to raise further funds without risking their own tax-exempt status. A common example of this is charity shops. In its report the Commission noted the disparity between the treatment of charities and their trading subsidiaries when it comes to business rates relief. Under the current scheme charities are entitled to a mandatory 80% relief from business rates. Local authorities can then decide to grant additional discretionary relief of up to 20%. These exemptions are not available for trading subsidiaries despite the fact that most will Gift Aid taxable profits back to the charity. The Commission has recommended that the Government consult on extending the relief to trading subsidiaries.

  • It was recommended that the Government produce guidance to counter a misconception that charities enter into some business arrangements with the aim of avoiding business rates.
  • Criteria for discretionary relief is set by local authorities and the Commission has found that it can often be difficult for charities to find sufficient information to check whether they are entitled to any discretionary relief. To counter this, the Commission recommends that the criteria for discretionary relief be published and easily accessible on all local authority websites.
  • It is also recommended that the Government ensures that local authorities are aware that mandatory business rates relief also extends to small unregistered charities.
  • The Government should also create a standard form that can be downloaded from the Gov.uk website for mandatory relief. This form should be downloadable, with electronic submission, and should be recognised by all local authorities. It is hoped this will ensure standardisation of the discretionary relief application process and will be easier for charities.
  • The situation for business rates relief in Scotland is different as business rates is a devolved matter. The Scottish Government introduced a bill to the Scottish Parliament on 25 March 2019 which proposes to exclude independent charitable schools from business rates relief; except under specific circumstances.

If you have a query about charity taxes, please contact Catriona at charities@chiene.co.uk or call 0131 558 5800.