It’s the season of giving and many people make charitable donations at this time, sometimes as part of a family tradition to make the donation in place of physical presents.
Clients need to remember that ticking the Gift Aid box on the paper or online form while making the donation is a win-win for both the donor and the charity. The taxpayer can benefit from higher rate tax relief and the charity can reclaim the Gift Aid amount from HMRC. Every £100 donated with Gift Aid is worth £125 to the charity.
The individual needs to declare they are a UK taxpayer, and that they pay income tax and/ or CGT at least equal the 20% tax treated as deducted from gross amount of donation. This should not be a problem in most cases, unless the donation is very large.
Donors also need to remember to record the date and amount of the donations, as this information is needed for the SA tax return to be completed for the year in which the donations were made, and possibly for the immediately preceding year.
Taxpayers can choose to carry back Gift Aid donations to the previous tax year if the donation is made before they submit the tax return for that year. Gift Aid donations made now can be treated as if they were made in the tax year 2020/21, if the 2020/21 tax return has not yet been submitted. This carry-back can be very useful way to increase the effective basic rate band threshold for the earlier year.
However, in view of the increases in NIC rates and dividend tax to come into effect on 6 April 2022, many owner/ directors will want to maximise their basic rate band for 2021/22, and so keep the donations in this tax year.
Written by the Tax Advice Network