FAQ: Gift Aid transitional relief

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What is the transitional relief?

At budget 2008, the Government announced a transitional relief for charities using the Gift Aid scheme. Charities and community amateur sports club receiving Gift Aid tax repayments will also receive a transitional relief which, when added to their Gift Aid tax repayment, means that they will continue to receive a total of 28 pence per pound donated for the next three years. This transitional relief has been provided by Government to allow charities to adjust to the change in the basic rate of income tax, and will give charities the certainty they need for the next three years.

Does my charity have to claim the transitional relief?

There is no need for charities to claim the transitional relief. For donations made by donors on or after 6 April 2008 you should make your claims for Gift Aid repayments at the new tax rate of 20 per cent of the ‘gross donation’ (which works out as 25p for every £1 donated). Providing you make your Gift Aid repayment claim within two years of the end of the accounting period or tax year to which the claim relates, HMRC will automatically add the transitional relief when we allow your claim.

What should we claim then?

For donations made up to and including 5 April 2008, the basic rate of tax is 22 per cent. This means that charities and CASCs should calculate their repayment claim by multiplying the total donations by 22 and dividing by 78. This works out at just over 28p for every £1 Gift Aid donation you receive. There is no transitional relief available for these donations.

From 6 April 2008, the basic rate of tax changes to 20 per cent. This means that for donations made on or after 6 April 2008, the charity or CASC should calculate their repayment claim by multiplying the total donations by 20 and dividing by 80. This works out at 25p for every £1 Gift Aid donation you receive. Transitional relief is available for these donations.

HMRC is producing a new repayment claim form for charities and community amateur sports clubs, and new schedules to distinguish between donations made up to 5 April 2008, and donations made on or after 6 April 2008. The forms include simple steps to help you get the calculations right.

Remember that transitional relief is only payable in respect of Gift Aid repayment claims that are made within two years of the end of the accounting period or tax year to which the claim relates.

What will my charity receive?

When HMRC allows your claim (subject to the usual checks and approvals) relating to donations made on or after 6 April 2008, we will automatically add the transitional relief. You will receive 25p tax relief and transitional relief of just over 3p for every £1 donated under the Gift Aid scheme.

When will my charity receive the transitional relief?

If claims are received before Royal Assent to both the Finance Bill and the Appropriation Bill (expected in late July 2008), HMRC will pay the tax refund of 25p per £1 donated, as usual. Once Royal Assent is received HMRC will then revisit these claims and pay the additional 3p per £1 donated, as soon as practicable.

For allowable claims received after Royal Assent, HMRC will repay the 25p tax and the 3p transitional relief per £1 donation at the same time.

What should the Gift Aid Declaration state?

The Gift Aid scheme applies to gifts of cash to UK charities and allows the charity to claim repayment of the basic rate tax paid by the donor. The donor must pay at least as much UK income tax and capital gains tax as the sum of tax reclaimed by the charity, and must give a valid Gift Aid declaration to the charity.

For donations made up to 5 April 2008 this means that the donor must have paid at least 28p tax for every £1 donated and allowed under the Gift Aid scheme. For donations made on or after 6 April 2008 this means that the donor must have paid at least 25p tax for every £1 donated.

If your charity’s Gift Aid declarations specify an amount of tax that the donor must have paid, next time you amend it you should include the new figures.

What about Higher Rate donors?

Donors who are liable at the higher rate of income tax can, additionally, claim tax relief for the difference between the higher rate and the basic rate of income tax.

For allowable Gift Aid donations made up to 5 April 2008 this means that higher rate donors can claim an extra 18 per cent tax relief (the difference between the basic rate of 22 per cent and the higher rate of 40 per cent) on the amount of a donation grossed up at the basic rate. A £1 donation is grossed up to £1.28 so a higher rate donor can claim further tax relief of 23p for every £1 (£1.28 x 18 per cent).

For allowable Gift Aid donations made on or after 6 April 2008 this means that higher rate donors can claim an extra 20 per cent(the difference between the basic rate of 20 per cent and the higher rate of 40 per cent) on the amount of a donation grossed up at the basic rate. A £1 donation is grossed up to £1.25 so a higher rate donor can claim further tax relief of 25p for every £1 (£1.25 x 20 per cent).

The amount of higher rate relief available is unaffected by the transitional relief and so it increases for donations made on or after 6 April 2008.

Does this affect Payroll Giving?

The transitional relief will have no effect on Payroll Giving. Under Payroll Giving, donations qualify for tax relief in the employee’s hands. Unlike Gift Aid, there is no repayment of the donor’s tax to a charity.