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What is gift aid?

Posted by Nick Dent on 10th March 2016

Gift Aid is a scheme enabling registered charities to reclaim tax on a donation made by a UK taxpayer, effectively increasing the amount of the donation.


 How much of a donation does a charity receive?

Donating through Gift Aid means charities and community amateur sports clubs (CASCs) can claim an extra 25p for every £1.00 received from a UK taxpayer.  It does not cost the individual any extra.

Charities can claim Gift Aid on most donations, but some payments don’t qualify.


How can I donate?

A taxpayer can donate straight from wages or a pension, or by donating land, property, or shares, or by leaving a gift in a will.


Has anything changed recently?

HMRC has published updated guidance on claiming Gift Aid on sales of donated goods (known as Retail Gift Aid) and revised template letters for charity shops to send to donors.

In order to successfully claim Gift Aid on sales of donated goods, charities that operate shops will have to ensure that their Retail Gift Aid processes comply with the revised rules and provide their staff with training within a relatively short implementation timescale.


How do charities claim gift aid on donated goods?

Gift Aid normally only applies to gifts of money by an individual.  The charity sector therefore devised a way for Gift Aid to be applied to the sale proceeds of donated goods sold by charities on behalf of their supporters.  Instead of giving the goods to the shops for the shop to sell, the shop sells the goods as agent on behalf of the donor.  The donor can then donate the proceeds of sale under the Gift Aid scheme.  This has become known as Retail Gift Aid.

During April 2013, two new methods were introduced (alongside the original, standard method) to enable charity shops to claim Gift Aid on their sales of donated goods:

Method A: to be used by charity shops that are operated directly by the charity they benefit.

Method B: to be used by charity shops that are operated by a separate entity, such as a wholly-owned trading subsidiary of the charity.


Does HMRC offer guidance on claiming gift aid?

In May 2013, HMRC updated its guidance on Retail Gift Aid to include rules on operating these new methods and published template letters containing compulsory wording for charity shops to use to write to donors when operating any of the three methods.  This guidance and the template letters have now been amended.


What are the new gift aid rules?

The guidance now includes detailed sections on record keeping and compliance.

The guidance and each of the template letters now warn that, if an individual has not paid sufficient UK income and/or capital gains tax to cover the amount of Gift Aid claimed by the charity, it is the donor’s responsibility to repay the difference to HMRC.

The guidance stresses the need for all shop staff involved in operating Retail Gift Aid to understand that goods cannot be sold on behalf of individuals who do not pay sufficient tax.

The guidance also says that it is unacceptable to operate an incentive bonus scheme or other monetary rewards system relating directly to a Retail Gift Aid scheme, as such rewards or incentives might encourage some shop staff to ignore the correct processes.  Charities that operate inappropriate schemes will not be able to claim Gift Aid on the sale proceeds of goods sold on behalf of individuals.

Charities are expected to carry out regular audits to ensure that correct processes are being followed.

Charities that use methods A or B must have implemented the in year revised template letters for sales above either £100.00 (method A) or £1000.00 (method B) as from 1 January 2016 and they must send out the revised end of tax year letters by 31 May 2016 (for the tax year 2015 to 2016) and within two months of each tax year end thereafter.

Charities that continue to use the standard method must ensure that their processes match the updated guidance and that the letters they issue to donors include the revised compulsory wording in the relevant template letter.


Are there any consequences for not complying with the new regulations?

HMRC has warned that failure to follow the revised guidance could result in subsequent Gift Aid claims being invalidated, but has given no deadline for implementing the changes to the standard method.

HMRC recommends that in year and end of year letters are sent by post.  While charities may use email, if they receive an “undeliverable” message in response, they must follow up by sending the donor a letter by post.

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