Gift Aid for individuals from 6 April 2000

3.2 Introduction

3.2.1

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:

  • the gift is not subject to a condition as to repayment
  • the gift is not a Payroll Giving donation
  • the gift is not deductible from income for tax purposes
  • the gift is not part of an arrangement for the charity to acquire property from the individual or a connected person
  • any benefits associated with the gift are within the statutory limits (see section ‘Donor benefits’)
  • the gift is not a ‘disqualified overseas gift’ [this applies only to payments made before 6 April 2010]

3.2.2

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 charity must have a Gift Aid declaration made by the donor which covers the donation (see paragraph 3.6)
  • the charity must have evidence that they have explained to the donor the personal tax implications of making a Gift Aid donation - this can be done by including an explanation on the Gift Aid declaration or separately
  • there must be an audit trail linking the donation to the donor and their Gift Aid declaration

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).

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3.3 Who can make a Gift Aid donation?

3.3.1

The following individuals can make Gift Aid donations:

For tax years up to and including the 2009-10 tax year

  • All individuals who are resident in the UK
  • Individuals who are Crown servants or members of the UK armed forces serving overseas
  • 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 (that is, the actual donation made plus the basic rate Income Tax treated as deducted from that donation).

For the 2010-11 and subsequent tax years

  • All individuals - the same rules apply for resident and non-resident individuals. Anyone who makes a Gift Aid donation must be charged Income Tax and/or Capital Gains Tax for the year of donation at least equal to the tax treated as deducted from all their Gift Aid donations.

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3.4 Methods of donation

3.4.1

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.

3.4.1.1

A donor can choose to donate any amount to charity - there is no upper or lower limit.

3.4.2

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

3.4.3

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.

3.4.4

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

  • 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 but a payment for the right to enter the raffle. It doesn’t matter that the chance or expectation of winning a prize is small or that the prize is of little value.

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.

3.4.5

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.

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3.5 Tax to cover

3.5.1

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.

3.5.2

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 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.

3.5.3

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).

3.6 Gift Aid declarations

3.6.1

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.

3.6.2

A Gift Aid declaration must:

  • state the donor’s name and home address
  • name the charity
  • identify the gift or gifts to which the declaration relates (for example, a particular donation or all donations)
  • confirm that the identified gift or gifts are to be treated as Gift Aid donations

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.

3.6.3

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.

3.6.4

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 subject to the normal time limit within which tax can be reclaimed.

Time limits for making a claim.

3.6.5

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.

3.6.6

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.

3.6.8

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.

3.6.9

There is no need for a charity to get approval from HMRC for own-design declarations - but HMRC will review proposed designs on request.

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3.7 Recording and audit of Gift Aid declarations

3.7.1

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.

3.7.2

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:

  • 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
  • an audio recording of the making of a declaration by the donor or an audio 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 emailed 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 paragraph 3.10

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.

3.7.3

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 they are 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.
  • Further guidance on audit procedures is available at Chapter 7 of these detailed guidance notes.
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3.8 Circumstances in which declarations are invalidated or have been cancelled

3.8.1

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:

  • 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

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.

3.8.2

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.

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.

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3.9 Further information on the contents of the Gift Aid declaration

3.9.1

The donor’s name and home address

The declaration should show:

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

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.

3.9.2

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:

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

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:

  • The donor is aware how his or her donation is to be split between the charities listed on the declaration.
  • 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.

3.9.3

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';
  • 'the enclosed donation'
  • 'all donations I make under the direct debit mandate below'
  • 'all donations I make on or after the date of this declaration'
  • 'all donations I make from this date until further notice'
  • 'all donations I have made for the four years prior to this tax year'

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.

3.9.4

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:-

  • 'Please treat the enclosed gift as a Gift Aid donation'
  • 'I want all my subsequent donations to be Gift Aid donations'
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3.10 Particular types of Gift Aid declarations

3.10.1

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 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:

  • all the details provided by the donor in their 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 their 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
  • 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 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.

3.10.2

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 when making an online claim or completing paper form ChR1 and show the donation received from each.

3.10.3

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:

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

3.10.4

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 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:

  • sponsor’s full name
  • sponsor's full home postal address - as a minimum HMRC 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 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.

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