If money raised during a church collection is passed on to another charity, the Gift Aid rules may apply to either the church (itself a charity) or the end charity depending on how the money was donated.
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If the church is recognised as a charity by HMRC, Gift Aid can be claimed on money collected for the benefit of the church. In order to make a repayment claim your church must obtain a Gift Aid declaration from the donor.
Linking cash donations to Gift Aid declarations can be difficult, so you might want to consider using a church envelope scheme. This is where you can collect cash donations in envelopes so that they can show an audit trail linking the donation to the donor.
For one-off donations, your church may choose to pre-print the Gift Aid declaration on the envelope for completion by the donor. If the donor is a regular supporter, your church may already hold their Gift Aid declaration, in which case the envelope needs to show either the donor’s name or a unique identifier such as a reference number which can be cross-referenced to a donor register.
When the envelope is opened and the contents are counted, an official from your church should record the amount on the envelope it came in, and in a donor record. You should keep the envelopes as part of your normal record keeping.
If a church collection is collected on behalf of another charity and simply passed directly on to that charity then the money collected does not form part of the church’s income, as it is merely acting as a go-between for the donor and the charity. The charity (and not the church) should therefore claim any Gift Aid - providing the usual Gift Aid rules are met.
If a church chooses to set up a fund to raise money for a charity then the money collected forms part of the church’s income and the church (which is a charity in its own right) must claim any Gift Aid due.
The church should then pass both the reclaimed tax and the donation to the charity, rather than the church keeping the reclaimed tax. This is because the person donating money to the fund will expect everything collected, including reclaimed tax, to go to the charity.
For more help you can contact the Charities Helpline.