At this time of the year many business owners and employees do tit-for-tat giving at Christmas – gifts to clients, gifts to contractors plus the office secret Santa, the result being, generally a whole lot unwanted tat. An alternative for individuals is to use the funds to make a gift to charity. UK taxpayers making charitable donations have the option to pay via Gift Aid. This allows charities to reclaim the tax from HMRC on donations, meaning any donation is increased.
The charity requires your name, address and a declaration that you’re a UK taxpayer and this can be done by telephone or in writing. Charities reclaim the tax at the basic 20% rate which, due to the way the numbers work, means they get 25% more than you donate (so if you give £10 the charity gets £12.50).
A higher-rate (40%) or additional-rate (45%) taxpayer is able to claim tax relief on the difference between the basic-rate and higher-rates (for example, 20% or 25%). For higher-rate taxpayers, on £10 that’s £2.50 and for additional-rate taxpayers, it’s a further £3.12. Higher and additional-rate taxpayers can claim the extra tax relief when filling out their tax self-assessment form; they could opt to donate this extra tax to charity.
A taxpayer may treat a Gift Aid donation before January 31 as being made in the previous tax year provided the total donations do not exceed the total chargeable income and gains. The claim must be made on or before the date the Tax Return for the previous year is submitted and no later than January 31 following the end of the tax year.
Also, everyone can donate to charity through their business. For a limited company, it’s the business that receives the tax benefit. For donations that count as “personal”, it’s the charity that can get the tax relief unless you’re a higher rate taxpayer, when you get a share too. It’s not just money that can be donated however each type of donations has its own specific rules and limitations.
So get inspired, choose your favourite charity or local sports club and you can support them through your business!