By Sam Bacall

When it comes to making savings, any reduction to your Income Tax bill must be welcomed.

Gift Aid is a way of donating to charity that also includes the tax that you have paid on the amount given.

The charity can claim back the basic rate Income Tax (20 per cent) that you have paid on the donation back from HM Revenue & Customs (HMRC).

Gift Aid is a fantastic way of boosting a charity’s funding while also reducing your Income Tax liability.

What are the benefits from donations?

Donating through Gift Aid means charities and community amateur sports clubs (CASCs) can claim an extra 25p for every £1 you give.

The process involves signing a Gift Aid declaration including your name, address, date, signature and declaration stating that you are a UK taxpayer, with any future donations made to the charity being treated as gift-aided donations.

When signing the Gift Aid declaration, the amount that you donate is taken from your taxed income, and the donation is then increased by the amount of tax that you have paid on it.

In essence, you give a portion of your taxable income to the charity, which means they can then claim back the tax that you have paid on that segment on your income.

For example, if you were to donate £100 to a chosen charity, your gift is treated as a net payment, which results in the gross amount of £125 with tax. The charity can then recuperate the £25 from HMRC.

Claiming tax relief through Self-Assessment

Self-Assessment taxpayers can claim tax relief on Gift Aid (once the charity has claimed the tax relief) on their own tax return.

You can also claim in the current tax year if you want the cash sooner or have previously paid the higher rate of Income Tax.

However, it is important to keep records of these donations if you wish to claim back tax on them.

Your records should evidence the date of the donation, the amount donated, and which charities you’ve donated to.

The official advice states that you should list your Gift Aid donations on your tax return or ask HMRC to add them to your PAYE code.

You can include all donations from the last four years.

In certain circumstances, you can carry donations back to the previous tax year.

This can bring you below certain income thresholds, helping you to retain certain reliefs and allowances such as Child Benefit payments, free hours of childcare, or your personal tax-free allowance.

Higher rate taxpayer benefits

If you pay tax at the rate of 40 per cent or higher, you can claim back the difference between the tax that you paid and the 20 per cent tax that is claimed by the charity.

For example, if you donate £200 to a charity, Gift Aid makes the total donation worth £250.

You can then claim back 20 per cent (the difference between 20 and 40 per cent) of £250, which is £50.

For sizable donations, this means you could claim back a substantial amount in tax.

For example, a donation of £5,000 becomes £6,250 with Gift Aid applied.

A 40 per cent rate taxpayer could claim back £1,250 in tax, while a 45 per cent rate taxpayer could reclaim £1,562.50.

Use Gift Aid to your advantage with FFT

Our experienced accountants can help you keep track of your Gift Aid donations and reclaim Income Tax through your Self-Assessment tax returns.

We can also advise on other ways to mitigate your liabilities as part of an overall tax planning strategy.

Every penny counts when it comes to your savings, so we’ll make sure you’re getting back everything you can.

For tailored advice and guidance on Gift Aid and tax planning, please get in touch.