The Gift Aid scheme was originally introduced by section 25 Finance Act 1990 but was substantially amended by Finance Act 2000 and later Finance Acts. The current legislation is at sections 413 to 430 Income Tax Act 2007.
A donation qualifies for Gift Aid if it is a gift consisting of a ‘payment of a sum of money’ by an individual who has paid, or will pay UK tax, to a charity and satisfies all of the following conditions:
A Gift Aid donation is treated as being made after the deduction of the basic rate of Income Tax in force at the time the donation is made and it is that tax that the charity can reclaim provided the following conditions are met:
The donor must be charged with Income Tax and/or Capital Gains Tax for the year of donation at least equal to the tax treated as deducted from their donation. If more than one Gift Aid donation has been made in the tax year they must be added together to work out the tax the donor must be charged with. If the donor is not charged with sufficient tax to cover the Income Tax deducted from their Gift Aid donations then they will owe the amount of the difference in tax to HM Revenue & Customs (HMRC) (see paragraph 3.5).
The following individuals can make Gift Aid donations:
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.
A donor can choose to donate any amount to charity - there is no upper or lower limit.
Donations by cheque are only valid pending clearance of the cheque. If the cheque is not honoured a donation has not been made.
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.
Payments to a charity in return for services, rights or goods are not gifts to charity and so are not eligible for the Gift Aid scheme. For example, the following cannot come within the Gift Aid scheme:
Payment
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 should also note that charity vouchers cannot be used to purchase services or goods from them.
Deeds of covenant are not effective for tax purposes. However, payments under a deed of covenant may qualify as Gift Aid donations provided all the conditions of the Gift Aid scheme are satisfied.
Donors must be charged an amount of Income Tax and/or Capital Gains Tax, whether at the basic rate or some other rate, for the tax year in which Gift Aid donations are made at least equal to the Income Tax treated as deducted from the total of all their Gift Aid donations made in the same tax year. Donors who have not been charged sufficient tax to cover the Income Tax deducted from their Gift Aid donations will owe the amount of the shortfall in Income Tax to HMRC.
Example
During the 2009-10 tax year (basic rate of tax 20 per cent), a donor (Mr. P Green) who only pays a small amount of Income Tax each tax year wins a prize of £10,000 in a competition. He decides to share his good fortune and makes Gift Aid donations of £800 to Charity A and £1,600 to Charity B.
Charity A claims Gift Aid tax relief of £200 and Charity B £400 - the total Gift Aid tax claimed by charities as a result of Gift Aid donations by Mr. Green in the tax year amounting to £600. However, Mr. Green only pays income tax of £250 during the 2009-10 tax year and so he owes the shortfall in tax of £350 (total Gift Aid tax of £600 less Income Tax paid of £250) to HMRC.
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 a Gift Aid 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.
The position of a taxpayer making Gift Aid donations can change from one tax year to the next. Charities should 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).
Before a charity can reclaim tax on a donation received from an individual, it must have received a Gift Aid declaration from the donor. Without this declaration, a donation from an individual will not qualify as a Gift Aid donation.
A Gift Aid declaration must:
In addition, in order for a Gift Aid declaration to be valid, the charity must give and be able to demonstrate it has given an adequate explanation to the donor of the personal tax implications associated with making a Gift Aid donation (see paragraph 3.5). This explanation can be included on a Gift Aid declaration but can also be made separately.
Gift Aid declarations can be given in writing (including by email, fax, or text message) or orally (in person or by telephone). A declaration can cover a single donation or any number of donations.
Donors are able to give the charity a declaration:
Time limits for making a claim.
A charity must keep adequate records to be able to show a clear link between an individual’s donation and the Gift Aid declaration made by the individual. This is referred to as an audit trail and enables HMRC to trace a donation back to the donor to ensure that they have paid sufficient tax to cover the tax that is reclaimed by the charity.
A charity may want to add further information and notes of its own on a declaration form. HMRC has no objection to this or to the inclusion of a declaration in other documents, such as standing order mandates provided the statutory requirements for a Gift Aid declaration are met.
HMRC does not produce an official form for Gift Aid declarations, so a charity can design its own. But the HMRC website contains a model Gift Aid declaration and it is recommended that charities use the model adapted, as appropriate, to reflect the period of the intended Gift Aid donation(s).
The notes at the foot of the declaration are purely explanatory and can be omitted if you wish.
Many charities believe a signature makes an individual more committed to their charity. However, there is no requirement for a declaration to contain a signature and so the ‘signature requirement’ can be removed if you wish.
The declaration does not require a date but a date serves to identify the period covered by the Gift Aid declaration and where this is not otherwise clear from the terms of the declaration it is necessary to include a request for a date.
The charity must tell a donor of the tax implications of making a Gift Aid donation. The donor’s tax obligation is shown in bold type on the model declaration. The charity can choose to leave the tax explanation on their Gift Aid declaration or omit it. If it is omitted then the charity must ensure that they clearly explain the donor’s tax requirement to their donors and are able to demonstrate to HMRC that they have done so.
A statement that 'I am a UK taxpayer' is not sufficient to meet the charity’s requirement to advise a donor of the tax implications of making a Gift Aid donation. A full explanation is essential to protect the individual donor and the charity. If the donor has not paid enough tax to cover the tax deducted from their Gift Aid donation(s), HMRC may ask the donor to pay the difference in tax. If the explanation is insufficient the Gift Aid declaration will not be valid and the charity may need to repay tax to HMRC.
There is no need for a charity to get approval from HMRC for own-design declarations - but HMRC will review proposed designs on request.
HMRC is required to ensure that any tax repaid to a charity is properly due and correctly calculated. HMRC does this by carrying 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.
A charity must maintain a clear auditable record of declarations and of the making of those declarations, so that it is able to demonstrate that a donor has in fact made an appropriate declaration. Examples of what HMRC is likely to accept as evidence include:
Note: the transcribing of declarations given by donors into a database will not satisfy the requirements to have an auditable record as such a record does not demonstrate that the donor made the declaration.
A charity must also maintain records that:
Invalid declarations
Where a charity has not maintained an auditable record of Gift Aid declarations and the making of them, or where 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 HMRC 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 email. The written statement should contain:
HMRC will accept that a written confirmation has been issued where the charity can show it has issued a standard letter template in an acceptable format and provides a list of the donors to whom 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 the charity should treat the declaration as if it has been cancelled. The charity must keep a record of the cancellation.
If there is no indication that the donor did not receive the notice and the donor does not cancel the declaration then the declaration will be considered 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.
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 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.
If a donor who has made an oral declaration and 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.
The donor’s name and home address
The declaration should show:
If HMRC find the details on a declaration are insufficient to trace the donor, HMRC may ask the charity 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 their 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.
A Gift Aid declaration must clearly identify the charity
A declaration should ideally show the charity’s full name. The charity’s 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:
This will usually be acceptable but care should be taken that the information is sufficiently clear 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:
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.
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:
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. If a specific date is not included in the description then it is essential that the Gift Aid declaration is dated so that the period it covers can be determined.
Depending on the description used, a declaration may apply indefinitely to future donations to the named charity.
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.
Declaration that donations are to be treated as Gift Aid donations
The declaration must confirm that the gifts described in it are to be Gift Aid donations and this is best done by a specific reference in the description of the donation(s) that are covered by the Gift Aid declaration - for example:-
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 them to confirm it, rather than asking the donor to recite the information themselves.
If a charity receives an oral declaration, and it does not keep an audible (and auditable) recording of the donor’s oral declaration it must send the donor a written record of the declaration to include:
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 HMRC.
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 emailed to the donor, or a paper copy sent by post. If the charity uses an electronic means of recording the donor’s information, it will need to be able to demonstrate 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.
Joint declarations
It is possible for spouses, civil partners and other 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 schedule to the claim form R68(i) and show the donation received from each.
Partnership declarations
In England, Wales and Northern Ireland a business partnership does not have a legal personality. So a donation by a partnership consisting of individuals 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 individual partner to make their 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:
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 theirs to give as a Gift Aid donation. However, individual sponsors may Gift Aid their own personal donations.
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 should reflect this.
Alternatively, it is possible for charities to design a sponsorship form that can also be used as a multiple 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:
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 Sponsorship and Gift Aid declaration form (PDF 78K).
Where a sponsor form is being passed around a workplace some donors may be reluctant to give their full home address. HMRC is 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.
For particularly large sponsorship events, a charity can use the modified procedure set out in section 6.6 of this guidance, Sponsored Events.
HMRC is happy to advise charities on how to operate Gift Aid for sponsorship events and to review draft sponsorship/declaration forms.
Charity collections
The money raised from collections for a charity - for example, from a charity event run in a workplace - will only be eligible for Gift Aid where the individual donors have made Gift Aid declarations. The people who organise the collection may not make a Gift Aid declaration in relation to the amounts collected as they did not donate the money.
