Section B: Gift Aid for Individuals from April 2000

3.4 Introduction

3.4.1 The Gift Aid scheme was amended by Finance Act 2000 for donations made by individuals on or after 6 April 2000. The main changes were to:

  • abolish the £250 minimum limit for Gift Aid donations, so that the scheme applies to any donation, whether large or small, regular or one-off
  • withdraw the separate tax relief for payments made under a Deed of Covenant and give all relief for such payments under the Gift Aid scheme
  • replace the requirement for donors to give the charity a Gift Aid certificate with a requirement to give a new, simpler and more flexible Gift Aid declaration
  • allow donors to give a written Gift Aid declaration by post, by fax or by Internet or an oral declaration over the phone or face to face.
  • allow
    • Crown servants and members of the UK armed services serving overseas, and
    • other non-UK-resident individuals who make donations out of income or gains charged to UK tax,
      to use the new Gift Aid scheme.

3.5 Commencement date

3.5.1 In the case of donations by individuals, the new Gift Aid measures apply to:

  • covenanted payments falling due on or after 6 April 2000, and
  • all other donations made on or after 6 April 2000.

3.5.2 Where a covenanted payment due before 6 April 2000 was made on or after that date:

  • the Gift Aid scheme will not apply to the payment
  • the existing rules for Deeds of Covenant will continue to apply to the payment.

In particular, the rule entitling the charity to reclaim tax at the basic rate in force when the covenanted payment falls due, rather than when it is made, will continue to apply to the payment.

Example

Mr MacDonald made a Deed of Covenant in favour of his local church, promising to pay £5 a week by until 31 December 2000. Mr MacDonald was unable to attend church on Sunday 2 April 2000, but paid £10 on Sunday 9 April 2000. The £5 due on 2 April 2000 will come under the Deed of Covenant scheme, and tax can be reclaimed at the basic rate of 23% (the tax rate in force when the payment was due). The £5 due on 9 April 2000 will come within the Gift Aid scheme (as will future payments under the Deed). Tax can be reclaimed at the basic rate of 22% in relation to this amount.

3.6 Abolition of the £250 minimum limit

3.6.1 From 6 April 2000, the £250 minimum limit for Gift Aid donations was abolished. From that date the charity can reclaim tax on any donations made by individuals, whether large or small, regular or one-off – provided the other conditions for the tax relief are satisfied. In particular, the charity will still have to be able to show an audit trail (see section 3.36 below) from the donation to a donor who has given a Gift Aid declaration which covers that donation. For Gift Aid declarations, see section 3.10 below.

3.6.2 Each charity will need to decide, from its own circumstances, whether it wishes to reclaim on small Gift Aid donations. For some charities it may not be cost effective to claim on donations below a certain threshold. For a small charity that can call on plenty of volunteers, it may be cost effective to claim on all Gift Aid donations. Whether a charity makes a claim on a Gift Aid donation or not, it is still possible for the donor to claim higher rate relief on the gross amount of the donation, provided he or she has completed a Gift Aid declaration and met the other conditions of the scheme.

Example

A donor who pays higher rate tax makes a Gift Aid donation on 30 June 2000 of £3 to a charity to which he has made a declaration. The charity has a policy of not claiming on donations below a threshold of £5, because it is not cost effective to do so. It therefore does not claim back the tax of £0.85 on the donation (£3 X 22/78).

The donor, however, can include the donation of £3 amongst any other donations on her tax return. Higher rate relief of £0.70 (£3.85 X 18%) will be due.

Top

3.7 Who can make a Gift Aid declaration?

3.7.1 Before 6 April 2000, only donations by UK-resident individuals could qualify as Gift Aid donations. From April 2000, the following will qualify:

  • donations by individuals who are resident in the UK
  • donations by individuals who are Crown servants or members of the UK armed forces serving overseas
  • donations by other non-resident individuals, provided they have income or capital gains charged to UK tax at least equal to the gross amount of the donation (i.e. the donation before deduction of basic rate income tax).

3.8 Methods of donation

3.8.1 Donors must donate their own money. The donation can be made by cash, cheque, direct debit, credit card, debit card, postal order or standing order. ‘Telegraphic transfer’ is also acceptable. Donations can be made in sterling or any foreign currency. When calculating claims the charity must convert foreign currency into sterling at the rate on the date when the donation was made.

3.8.2 Donations by cheque are only valid pending clearance of the cheque. If the cheque is not honoured a donation has not been made.

3.8.3 A donation must be a payment of a sum of money. A donation cannot be made in kind, by loan waiver or by debt/loan conversion.

3.8.4 Subject to the benefits rules outlined below in Section D, outright payments to a charity in return for services, rights or goods are not gifts to charity and so are not eligible for Gift Aid tax relief. For example, the following cannot come within the Gift Aid scheme:

Payment

  • of school fees for a specific person
  • to purchase books, jumble sale items, food etc
  • for admission to events (jumble sales, concerts etc)
  • for raffle or lottery tickets (including 100 clubs etc). The payment to purchase a raffle ticket from a charity is not a gift to that charity but a payment for the right to enter the raffle. It is immaterial that the chance or expectation of winning a prize is small or that the value of the prize maybe negligible.


A charity must not make claims under the Gift Aid scheme in respect of payments which have already received tax relief. This includes payments received in the form of charity voucher or from a Payroll Giving Agency in respect of payments made under the Payroll Giving scheme.

Charities also should bear in mind that charity vouchers cannot themselves be used to purchase services, rights or goods, examples of which are shown above.

3.9 Tax to cover

3.9.1 From 6 April 2000, donors no longer need to pay income tax at the basic rate equal to the tax reclaimed by the charity on their donations. Instead, donors have to pay an amount of income tax and/or capital gains tax, whether at the basic rate or some other rate, equal to the tax deducted from their donations. This means that donors who previously may have paid tax at a marginal rate between the lower and basic rates of tax (and therefore had not paid enough tax at the basic rate to cover the tax reclaimed by the charity) will no longer have additional tax to pay.

3.9.2 Even though a donor cannot receive payment of non-payable tax credits on dividends paid by UK companies, those credits can be used by the donor to cover the tax reclaimed by the charity on the donation. Tax deducted from bank and building society interest etc., and not repaid, can also be used to cover the tax reclaimed by the charity.

3.9.3 Prior to 6 April 2000 donors could only claim higher rate tax relief for their donations against income tax they paid. From 6 April 2000 donors will be able to claim higher rate tax relief for their donations against both income tax and/or capital gains tax.

3.9.4 The position of a taxpayer making Gift Aid donations can change from one tax year to the next. Charities are recommended to remind donors on a regular basis of the need for them to have paid sufficient income and/or capital gains tax on their donations. It need not be done in a separate letter to each donor, but could be included in any material sent to supporters (a newsletter, for example).

Top

3.10 Gift Aid declarations: introduction

3.10.1 Before a charity can reclaim tax on a donation by an individual, it must have received a Gift Aid declaration from the donor containing certain information and confirming that the donation is to be treated as a Gift Aid donation. Without this declaration, a donation from an individual will not qualify under the scheme.

3.10.2 A charity must keep adequate records to be able to link the donor to the making of a declaration. If a charity does not maintain adequate records a declaration may be invalidated. If you are putting in place new procedures for collecting Gift Aid and are unsure whether the standard of record keeping in those procedures is adequate we will be happy to review them with you. We recommend if you have doubts that your procedures
are adequate, that you allow sufficient time to make any necessary changes prior to using them. For assistance please contact the address at 3.10.9 below.

3.10.3 Gift Aid declarations can be given in writing, or orally. This includes electronic communications such as use of the Internet, e-mail, fax, telephone, mobile phone or text message etc. A declaration can cover a single donation or any number of donations.

3.10.4 Donors are able to give the charity a declaration:

  • in advance of their donation, or
  • at the time of their donation, or
  • at any time after their donation (this only applies to donations made after 5 April 2000 and is subject to the normal time limit within which tax can be reclaimed. This is normally around six years).

3.10.5 The information required in a Gift Aid declaration has been kept to the minimum consistent with proper administration of the tax relief and the need for the charity to be able to show an acceptable link between a donation and the individual claiming the relief on it. (Referred to as an audit trail).

3.10.6 A charity may want to add further information and notes of its own on a declaration form. We have no objection to this or to the inclusion of a declaration in other documents, such as standing order mandates.

3.10.7 It may also be necessary for a charity to add additional information to a declaration in order to comply with other non-tax legal requirements.

3.10.8 We do not produce an official form for Gift Aid declarations, so a charity can design its own. But, Appendix B1 contains a model declaration form that can be adapted if you wish. The model declaration contains some notes over and above the minimum requirement. You do not have to include all of these notes in your own-design declaration form. Only those notes in bold type must be included in a valid declaration form.

3.10.9 There is no need for a charity to get approval from us for own-design declarations - but we will be happy to review declarations if a charity would like us to do so. If a charity or fund-raiser does want us to comment on a declaration, they should contact:

HM Revenue & Customs Charities
St John’s House
Merton Road
BOOTLE
Merseyside
L69 9BB
Tel. 0845 302 0203
Fax. 0151 472 6268

Or e-mail: charities@inlandrevenue.gov.uk

3.11 What a gift aid declaration must contain

3.11.1 From 1 November 2005 a Gift Aid declaration must:

  • contain the donor’s name and home address,
  • name the charity (or be made in circumstances where the charity is identified),
  • identify the gift or gifts to which the declaration relates, and
  • confirm that the identified gift or gifts are to be treated as Gift Aid donations.

These requirements are explored in greater detail at [3.14]

3.11.2 For a declaration to be valid the donor must have been given an explanation that they are liable to reimburse HMRC the relevant amount involved if they have not paid with an amount of Income Tax and/or Capital Gains Tax equal to the amount reclaimed by the charity. We understand that the strict requirements expressed in terms of a legislative reference are unlikely to be understood by a majority of donors and have included examples of a suitable alternative form of words at 3.14.5.

It is not normally necessary for a declaration to be signed and dated.

3.11.3 A date is needed on the declaration only where it serves to identify that a particular donation or donations are to come within the scheme. For example, if a declaration states that ‘all donations I make from today' are to be Gift Aid donations, clearly a date would be required. A date will not be required where the declaration states, for example, ‘all donations I have made for the six years prior to this year, (but no earlier than 6/4/2000) ’.

3.11.4 The information required in the declaration does not necessarily need to have been given by the donor. A charity can provide some of the information for the donor for example by:

  • pre-printing most of the information on the declaration form, or Internet site,
  • pre-recording information on a telephone donation line, or
  • reciting information to the donor and asking the donor to confirm it.

3.11.5 A charity should bear in mind, however, that a donor might later wish to deny that he or she made a declaration. If there is no part of a declaration demonstrably completed by the donor, the charity will find it difficult to prove that the declaration was genuine and if the charity cannot prove the declaration was made by the donor it will be required to pay back any tax it has reclaimed on that gift.

Top

3.12 recording and audit of gift aid declarations

3.12.1 We have a duty to ensure that any tax repaid to charities is properly due and correctly calculated. Our Audit Team carries out inspections to check that Gift Aid claims are made for the correct amounts and are backed by valid Gift Aid declarations and clear audit trails in respect of donations received.

3.12.2 A charity must maintain a clear auditable record of declarations, such that it is able to demonstrate that a donor has in fact made an appropriate declaration. Examples of what we are likely to accept as evidence include:

  • a written declaration made by the donor or a ticked box confirmation by the donor that they wish Gift Aid to apply to the donation.
  • a recording of the making of a declaration by the donor or a recording of the donor confirming a declaration where the declaration is pre-recorded by the charity,
  • a computer record of a declaration template filled in by the donor and containing a link to the donors banking details,
  • an e-mailed copy of a declaration,
  • a computer 'screen print' of the declaration sent to the charity,
  • a scanned image of a declaration
  • a copy of a mobile phone text message confirmation of a declaration
  • Confirmation that a donor has been sent a written record confirming their Oral declaration (see para. 3.15.1)

Note: the transcribing of declaration given by donors into a database will not satisfy the requirements to have an auditable record as there is no link to the donor.

3.12.3 A charity must also maintain records that:

  • provide an audit trail linking each donation to an identifiable donor who has given a valid Gift Aid declaration, and
  • provide acceptable evidence that a donor has been advised that he/she is liable to tax if they have not paid an amount of Income Tax and/or Capital Gains Tax equal to the amount reclaimed by the charity. This will be necessary where the declaration is part of a recorded message provided by the charity or it is included on an Internet site (see 3.14.5).

Further guidance on audit procedures is available at Chapter 7 of these detailed guidance notes.

3.13 Circumstances in which declarations are invalidated or have been cancelled

3.13.1 Invalid Declarations

Where a charity has not maintained an auditable record of Gift Aid declarations, or where we believe that those records are insufficient to show that the donor made the declaration, the declaration will be invalid. A charity will then be liable to pay back to us all tax repayments received in relation to those gifts. This will include interest and possibly penalties.

A charity may be able to validate an invalid declaration by sending a written statement to the donor - this includes a statement sent by e-mail. The written statement should contain:

  • all of the information provided by the donor in their declaration,
  • an explanation that the donor must have paid enough Income Tax and/or Capital Gains Tax to cover that reclaimed by the charity,
  • the date on which the charity sent the written statement to the donor,
  • a statement giving the donor 30 days from the date of the written statement in which to cancel the Gift Aid declaration.

We will accept that a written confirmation has been issued where you can show a standard letter template in an acceptable format and a list of the donors to which the letter was sent.

Where the donor cancels their declaration within 30 days, the declaration will be treated as if it was never made. The charity must maintain an auditable record of all written statements and cancellation notices.

If the written statement is marked 'returned to sender' or 'not known at this address' etc you should treat the declaration as if it has been cancelled. You must keep a record of the cancellation.

If the donor does not cancel the declaration then the declaration will be treated as valid and Gift Aid can be reclaimed by the charity on the gift or gifts to which it applies. The charity must maintain records of the written statements and any cancellation notices to a suitable standard to enable the records to be audited.

3.13.2 Cancellation of declarations

Donors are entitled to cancel their declaration at any time. They may do so by notifying the charity in any convenient way. The charity should keep a record of the cancellation of a declaration, including the date of the donor’s notification.

A cancellation will normally have effect only in relation to donations received by the charity on or after:

  • the date on which the donor notifies the charity of the cancellation, or
  • such later date as the donor may specify in the cancellation.

The charity must not reclaim tax in respect of such donations. Any donations received before the date of the donor’s notification will still qualify as Gift Aid donations. However, a charity that receives notification part way through a year that a donor has ceased to be a taxpayer may decide not to claim repayment with respect to outstanding donations received earlier that year.

If a donor who has been sent a written statement by the charity cancels their declaration within 30 days of being sent the written statement, the cancellation will have retrospective effect, so that it will be as if the declaration had never been made.

3.14 Further information on the contents of the gift aid declaration

3.14.1 The donor’s name and home address

The declaration should show:

  • the donor’s full name – as a minimum we will accept the donor’s initial and surname.
  • the donor's full home postal address – as a minimum we will accept the number (or name as appropriate) of their home and their full postcode.

If when we audit a charity's claim the details on a declaration are insufficient to enable us to trace the donor, the charity may have to obtain further information to substantiate its claim. If the charity fails to obtain this information, it is likely that the declaration will be considered invalid.

If a donor subsequently changes his or her name or address, this will not invalidate the declaration. If the charity is notified of a change in the donor’s name or address, it must keep a record of the updated information - this can be kept as an electronic copy such as a scanned document. The declaration itself does not need to be amended, but a record of the change should be kept on the charity’s database.

3.14.2 Name the charity or be made in circumstances where the charity is identified

A declaration should ideally show the charity’s full name. Its working name or acronym is acceptable, provided it is sufficient to identify the charity beyond doubt.

There are other ways in which a charity might be identified in a particular declaration, for example:

  • the use of a charity’s logo on a pre-printed form or
  • a reference to a particular appeal run by an individual charity.

Such approaches will usually be acceptable but care should be taken that the information is indeed sufficient unequivocally to identify a particular charity beyond doubt.
A telephone declaration might, for example, be made in response to a recorded message identifying the charity. An appropriate message will in itself be acceptable; there is no requirement for the donor personally to identify the charity.

A declaration can include the name of more than one charity – for example, where a joint fund-raising event takes place. In such a situation the charities involved need to ensure that:

  • the donor is aware how his or her donation is to be split between the charities listed on the declaration, and
  • they each keep records of how the donations have been divided between them. Each charity will also need to be able to produce a copy of the declaration, if required.

Where a charity changes its name (for example because of a merger) the charity will not need to obtain a new declaration from a donor so long as the charity can show beyond doubt that the name of the charity on the existing declaration is a name previously used by the charity.

3.14.3 Identify the gift or gifts to which the declaration relates

Any appropriate description can be used in a declaration but it must be unambiguous. Donations considered to fall outside the description provided will not qualify for Gift Aid relief.

Examples of some common descriptions include:

  • "the donation of £x I made to you on dd/mm/yy", or
  • "the enclosed donation", or
  • "all donations I make under the direct debit mandate below", or
  • "all donations I make on or after the date of this declaration", or
  • "all donations I make from this date until further notice", or
  • "all donations I have made for the six years prior to this year, (but no earlier than 6/4/2000)".

Whether the charity chooses from one or more of the above descriptions or devises its own, it is important to get the description right. The declaration will not cover any donations received that fall outside the description used.

Depending on the description used, a declaration may apply indefinitely to future
donations to the named charity. There is no requirement for such declarations to be renewed periodically, but see paragraph 3.11.2 about reminding donors about the need for them to have paid the correct amount of tax.

If a donor wishes to alter the description of the gift or gifts shown on a declaration, they must cancel the declaration and make a fresh one.

3.14.4 Declaration that donations are to be treated as Gift Aid donations

In strictness the declaration must confirm that the gifts described in it are qualifying donations for the purposes of section 25 Finance Act 1990 (Donations to charity by Individuals). In practice we accept that such a statement is likely to mean little to a majority of donors. We will therefore accept a suitable form of words that conveys the required message, such as:

  • "Please treat my donations as Gift Aid donations", or
  • "I want my donations to be Gift Aid donations", or
  • "Please reclaim tax on my donations", or
  • "I want the charity to reclaim tax on my donations", or
  • "I want the charity to reclaim tax on my donations Yes/No (delete as appropriate)", or
  • "Tick here if you want us to reclaim tax on your donations [ ]".

3.14.5 Note explaining the 'sufficient tax' requirement

We recognise the strict requirements expressed in terms of a legislative reference are unlikely to be understood by a majority of donors. We are content for a suitable alternative form of words to be used, such as:

  • "You must pay an amount of income tax and/or capital gains tax equal to the tax we reclaim on your donations", or
  • "Remember to notify us if you no longer pay an amount of income tax and/or capital gains tax equal to the tax we reclaim on your donations".

Statements such as “I am a taxpayer” are not, in themselves, sufficient.

Where a donor provides a long term or open-ended Gift Aid declaration, it would be considerate of a charity to provide regular reminders of this requirement – perhaps in “thank you” correspondence or simply in a newsletter. There is, however, no obligation on a charity to do this.

3.15 Particular types of declaration

3.15.1 Oral Gift Aid declarations

In the case of an oral declaration, the person taking the declaration on behalf of the charity might recite information already held by the charity to the donor and ask him or her to confirm it, rather than asking the donor to recite the information him/herself.

If a charity receives an oral declaration, and it does not keep an audible (and auditable) recording of the donors oral declaration it must send the donor a written record of the declaration to include: :

  • all the details provided by the donor in his or her oral declaration
  • an explanation that the donor must pay an amount of income tax and/or capital gains tax equal to the tax deducted from his or her donations
  • an explanation of the donor’s entitlement to cancel the declaration retrospectively within 30 days (see below)
  • the date on which the donor gave the charity the oral declaration, and
  • the date on which the charity sent the written record to the donor.

    An oral declaration will not be effective unless and until the charity or its representative sends the donor the written record of the declaration. The charity cannot reclaim tax in respect of a donation covered by an oral declaration until it has sent the written record. Once the written record has been sent, the charity can reclaim tax in respect of any donations covered by the declaration, even if they were received before the written record was sent. If the oral declaration is cancelled within the 30-day period, however, any reclaimed tax will have to be repaid to HM Revenue & Customs (see below).

The written record of the declaration does not have to be recorded on paper. For example, the charity’s representative might record the details on a computer, with an electronic copy being e-mailed to the donor, or a hard copy sent by post. If the charity uses an electronic means of recording the donor’s information, it will need to demonstrate to HMRC Charities at an audit that the electronic recording of the information generates a written record sent to the donor.

If a donor who has given the charity an oral declaration cancels it within the period of 30 days after being sent the written record, the cancellation will have retrospective effect, so that it will be as if the declaration had never been made.

3.15.2 Joint declarations

It is possible for spouses and persons living together to make a joint declaration on the same form (in effect, there are two Gift Aid declarations). The joint declaration must include the full name and address of each person. Both parties will need to make clear to the charity involved how much of any donation relates to each of them. They will also need this information for their own tax affairs. The charity will need to list each person separately on the R68 (Gift Aid) schedule form that accompanies its claim and show the donation received from each. (See also paragraph 3.15.1 on 'joint declarations')

3.15.3 Partnership declarations

In England, Wales and Northern Ireland a business partnership does not have a legal personality. So, a donation by a partnership is treated as made by the underlying partners. One partner may make a Gift Aid declaration on behalf of all the partners, provided he or she has the power to do so under the terms of the partnership agreement or some other instrument given under seal. In that case it will be sufficient for the declaration to show the name and address of the partnership. Otherwise, it will be necessary for each partner to make his or her own Gift Aid declaration. They may do so on the same declaration form, provided it lists all their names and home addresses.

Limited Liability Partnerships and partnerships in Scotland, have a legal personality. So, in all cases, one of the partners may make a Gift Aid declaration on behalf of the partnership, showing the name and address of the partnership.

The partners should enter their share of the donation on their own Self-Assessment return. How the donation is apportioned between the partners is a matter for them to decide. For example:

  • in equal shares;
  • in accordance with their share of the partnership profits set out in the partnership agreement; or
  • in whatever split the partners agree

3.15.4 Declarations linked to sponsored events

The money raised from a sponsored event does not belong to the individual who is being sponsored and it is not his or hers to give as a Gift Aid donation. However, it is possible for individual sponsors to elect for their payment to be treated as a Gift Aid donation.

The sponsor needs to make a separate declaration to the charity on whose behalf the money is being raised. This is likely to be a one-off donation and the declaration will need to reflect this.

Alternatively, it is possible for charities to design a sponsorship form that can also be used as a joint declaration form. The suggested format is for the declaration to be placed at the head of each sheet, with each sponsor being able to opt to have his or her sponsorship money paid to the charity as a Gift Aid donation by, for example, ticking a box. The recommended method is to have the following boxes below the declaration for each sponsor to complete:

  • Sponsor’s full name
  • Sponsor's full home postal address - as a minimum we will accept the number (or name as appropriate) of their home and their full postcode
  • Amount pledged
  • Amount collected
  • Date collected
  • Tick box to have amount treated as a Gift Aid donation.

The date when the sums collected were handed over to the charity should also be entered on the form. A copy of a model Gift Aid sponsored event form can be found at Appendix B2.

Where a sponsor form is being passed around a workplace some donors may be reluctant to give their full home address. So we are prepared to accept that the home address has been provided if donors enter, as a minimum, the name and number of their home, and their full postcode.

Where the participant banks money collected in their own account before sending a cheque to the charity, they should ensure that the sum on the cheque matches the amount collected on the sponsorship forms so that the charity is provided with a clear audit trail.

A charity can use a declaration/sponsorship form that we have approved as a substitute for the R68 (New Gift Aid) schedule that accompanies its claim (see Section 6.4). It should send a copy of the form to us and retain the original for inspection as necessary.

We recommend that claims for this type of donation are made on a separate R68 form from those for all other types of donations. You should provide a summary of the items eligible for Gift Aid and calculate the tax claimed on that total.

For particularly large sponsorship events, a charity can use the modified procedure set out in paragraphs 6.6.9 - 6.6.14 of this guidance.

We are happy to advise charities on how to operate Gift Aid for sponsorship events and to review draft sponsorship/declaration forms.

Top

3.16 Deeds of Covenant - transitional arrangements

3.16.1 From 6 April 2000 there is no longer a separate tax relief for payments made by an individual (or a company) under a Deed of Covenant – in future all tax relief for such payments is under the Gift Aid scheme. As a transitional measure, charities do not have to get a Gift Aid declaration in respect of payments under a Deed of Covenant that is already in existence before 6 April 2000. The Deed of Covenant will stand in place of the Gift Aid declaration. However, any donations made outside the terms of the Deed, or after expiry of the Deed, must be covered by a separate Gift Aid declaration.

3.16.2 Payments made under a Deed of Covenant executed on or after 6 April 2000 must be covered by a Gift Aid declaration. Where a charity wishes to continue with the use of Deeds of Covenants for donors, these can also be used as declarations provided all the information required in the declaration is given on the Deed.

3.16.3 The abolition of a separate tax relief for payments made under a Deed of Covenant to a charity does not mean, of course, that such deeds will cease to exist. It does mean that they are no longer required so that a charity can reclaim tax on the donations. Some charities may decide to continue to obtain Deeds of Covenant from their supporters in order to secure a regular flow of income. If they do so, they will need to make sure they also obtain a Gift Aid declaration from the donor, or ensure the Deed contains the necessary elements required in such a declaration.

Example

Mrs Jones has a Deed of Covenant in force with her local church to pay £2 weekly. The Deed commenced on 1 January 2000, and will cease on 31 December 2003. On 1 September 2000 she increased her weekly donations to £3 per week.

Mrs Jones will need to make a Gift Aid declaration in relation to the additional £1 a week she is giving, if she wants the amount to come within the scheme. Even if she does not, she will need to make a declaration after December 2003 if her original donations of £2 are to continue to be tax effective.

Alternatively, if Mrs Jones is willing, the church may decide to cancel the covenant with effect from 6 April 2000 and replace it with an open Gift Aid declaration in relation to all donations made by her on or after 6 April 2000.

Mrs Jones can make a Gift Aid declaration from 6 April 2000, even if the covenant remains in force, to cover the deed payments and any other donations she may make to the church.

3.16.4 From 6 April 2000 IR Charities will no longer give advice on the drafting of Deeds of Covenant for individuals (or companies).

Deposit covenants

3.16.5 A loan or deposit covenant is an arrangement under which the covenantor pays to the charity a lump sum equal to all the payments which will fall due over the life of a Deed of Covenant. The lump sum is treated as a loan or a deposit and the payments under the Deed are treated as being paid from this fund as they fall due.

3.16.6 For Gift Aid purposes, however, payment will be deemed to have been made when the lump sum is made over to the charity, and tax relief for the charity and donor will be for the year in which this occurs. Charities will need to ensure, if they continue to seek deposit covenants, that any loans or deposits they receive from a supporter who has an open Gift Aid declaration in place are supported by a deed making over the amount to the charity over a period of time. Loans or deposits that are returnable should not feature in a Gift Aid claim.

3.16.7 As a transitional concession, however, payments due under a loan or deposit covenant on or after 6 April 2000 which were prepaid before 6 April 2000 will be treated as new Gift Aid donations paid on the due date. The amount due under the deed will be treated as paid on the date it is converted from a loan or deposit to a payment. This will ensure that tax relief will not be lost, as would otherwise be the case, on loan or deposit covenants taken out prior to 6 April 2000.

3.16.8 Additionally, in the case of deposit covenants in existence at 5 April 2000, the outstanding loan can be converted into a Gift Aid payment, providing there is evidence that the charity are content to release the donor from the covenant and the donor wishes the deposit to be treated as a donation.