Gift Aid is a scheme that helps charities and community amateur sports clubs (CASCs) of all sizes in the UK boost their fundraising coffers. For every donation made, an extra 25% can be claimed back by the charity from HMRC. And it can really add up, with Gift Aid donations running into billions of pounds every year.
So, what exactly is Gift Aid, how does it work and how can charities claim it? Here, we’re running through everything you need to know about Gift Aid in our complete guide to Gift Aid for charities.
Understanding Gift Aid: What is it?
With Gift Aid, if you’re a registered charity or CASC you can claim an extra 25p for every £1 that’s voluntarily donated to you.
The idea behind Gift Aid is that people usually make donations from their post-tax income. The charity then takes that donation, and if the person has agreed to Gift Aid, then claims their basic-rate (20%) tax back from HM Revenue & Customs.
And whilst 25p might not sound like a huge sum, every small donation adds up. In fact, in the first 25 years of Gift Aid – from 1990 to 2015 – it generated around £60 billion for charities. Today, on average each year charities receive £1.4 billion from Gift Aid donations.
How does Gift Aid Work?
In order for you to claim Gift Aid, the donor must:
- Have paid at least as much in Income Tax or Capital Gains Tax in that year as you want to claim in Gift Aid.
- Make a Gift Aid declaration that gives you permission to claim it.
The Gift Aid declaration is of critical importance. As you are claiming that person’s basic rate of tax back from HMRC, that person needs to give permission for you to do so.
The declaration form must include the following information:
- A description of the gift
- The name of the charity or CASC
- Donor’s full name
- Donor’s home address (at least house number or name and postcode)
It must also include the following statement:
‘I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax in the current tax year than the amount of Gift Aid claimed on all my donations it is my responsibility to pay any difference’.
This means that charities or CASCs must ask their donors to fill out a declaration form each time they make a donation, to ensure they can legally claim the Gift Aid. You then need to store this information in a database, such as excel or an online database. This can then be submitted online to HMRC or via post to make the claim for Gift Aid.
The Gift Aid Small Donations Scheme
You should also be aware of the Gift Aid Small Donations Scheme (GADS). This is focused on smaller donations, where you can claim 25% on:
- Cash donations of £30 or less
- Contactless card donations of £30 or less collected on or after 6th April 2019
The key part about GADS is that you don’t need a Gift Aid declaration to claim. In order to claim under GADS, you must have claimed Gift Aid in the same tax year without getting a penalty in the last two years. Your GADS claim also can’t be more than 10x your Gift Aid claim. So, if you claimed £100 in Gift Aid, you would be able to claim a maximum of £1000 through GADS. The total you can claim in any one year through GADS is £8000.
A Quick Summary of the Gift Aid Rules
There are a few rules to remember about Gift Aid. They include:
- You can only claim donations if the donor has completed a Gift Aid declaration form.
- The donor must have paid a sufficient amount of tax that year.
- Donations won’t qualify for Gift Aid if they are worth more than four times the amount the donor has paid in that tax year.
- You can’t claim Gift Aid on donations made through Payroll Giving (link to payroll giving article), from limited companies, shares, charity cards or vouchers, or membership fees.
- You need a database in place to record all the donations given. This needs to be updated with any changes to your donors’ tax statuses.
Also, if a donor receives a specific benefit from donating, it won’t be seen as a voluntary donation by the Government and can’t be used for Gift Aid. This could include tickets and entry fees for charitable events for example.
The Benefits of Gift Aid for Charities
The biggest benefit of Gift Aid for charities and CASCs is of course financial. If you are able to claim Gift Aid on all of your voluntary donations, it boosts your funds by an extra 25%. Say for example you secured £1000 in donations at a fundraising event or through online fundraising and each of your donors elected to provide Gift Aid, that’s an extra £250 into your fundraising pot.
Across the year, this can really add up and can make a huge difference to the future of your organisation. In fact, UK charities made £1.38 billion from Gift Aid in 2019/20 despite the effects of the pandemic. It’s clearly a hugely worthwhile initiative for charities and CASCs of all sizes.
How to Claim Gift Aid: A Step-by-Step Guide
As mentioned above, you need to make sure that each donor fills out a Gift Aid declaration form and that they are eligible in line with the above tax rules. As a charity or CASC, you need to collect all of this information to make a claim.
Claims can be done online via HMRC or through the post. For claims of over 1000 donations, you must use HMRC software to submit your claim.
The deadline to claim Gift Aid depends on how your charity or CASC is set up. You need to claim for a donation within four years of the end of the financial period you received it in. This is either:
- The tax year (6th April to 5th April) if you’re a trust
- Your accounting period if you’re a CASC, a Charity Incorporated Organisation (CIO) or a limited company
If you’re claiming on cash donations under GADS, you need to do so within two years of the end of the tax year that the donations were collected in.
You’ll get your Gift Aid payments from HMRC within four weeks if you claimed online and within five weeks if you claimed by post. You must keep all your Gift Aid records for two years after you submitted the claim.
Managing Gift Aid in the Context of Events and Sponsorship
The rules around Gift Aid get a little complicated when it comes to your events and sponsorship initiatives. Let’s take a quick look at how it works.
Fundraising Events
If you’re selling tickets to attend your event or charging entry fees, these can’t be used to claim Gift Aid. This is because it’s not considered as a gift, as it’s something that’s paid in return for entrance and participation in the event. It is only voluntary donations that qualify for Gift Aid. Minimum donations also don’t qualify – any amount over the set minimum donation does qualify, however.
Remember, if you’re asking for donations at your events and you want to claim Gift Aid on these, you will need to ask each donor to complete a Gift Aid declaration form.
Sponsorship
Fundraising through sponsored events and challenges, like the London Marathon (link to cornerstone article) and Tough Mudder (link to cornerstone article), are always popular ways for charities to secure funds. However, there are a few Gift Aid rules to be aware of.
Sponsorship can be claimed as Gift Aid. However, this can only be done so if the participant pays for any flights and accommodation required for the trip. If the sponsors are connected to the participant in some way, as a spouse or parent for example, then Gift Aid can only be claimed on the sponsorship if the participant pays for the full cost of the trip. The registration fee also can’t be claimed as Gift Aid as this is viewed as being raised in return for competing in the event, in the same way you would buy a ticket for an event.
Common Mistakes and Pitfalls with Gift Aid
When claiming Gift Aid for your charity or CASC, it’s important not to fall into the following traps:
- Forgetting the different rules around GADS: Any claims for GADS as opposed to Gift Aid need to be made within two years of the end of the tax year. GADS also runs from tax year to tax year. Gift Aid is every four years and can run in line with your accounting period as opposed to the tax year. It’s important to keep proper records and make sure everything is submitted on time. Put in place a calendar of all the key dates, so you know what to submit and when.
- Errors on paper forms: HMRC is trying to eradicate the use of paper forms as if these are filled out incorrectly, it can reduce the amount of Gift Aid able to be claimed. Mistakes include things like putting N/A on boxes that need to be left blank. To reduce these errors, ensure your Gift Aid is done digitally. Even if you’re collecting donations in person, you can ask for your Gift Aid forms to be completed on a digital device like an iPad.
- Wrong person submitting the claim: You need to designate a nominated official in your organisation to submit the Gift Aid claim to HMRC. If someone else submits the claim, it can be rejected. Always make sure the nominated person handles all the communication with HMRC and submits all claims.
- Claiming excessive amounts via GADS: You can collect up to a maximum of £8000 or up to 10 times the amount you’ve claimed in Gift Aid. If you have raised more than £8000, put the claim as £8000 (and not more) to avoid any issues with HMRC.
- Not claiming your Gift Aid donations: According to HMRC, charities are missing out on £600 million of Gift Aid donations not being claimed. It’s super important to understand all the rules and make sure you’re submitting your claims correctly.
Tips on Maximising Gift Aid Donations
Gift Aid only works if your donors take the time to complete the Gift Aid declaration. Without this, you could be missing out on an extra 25% of every donation received. To maximise your Gift Aid donations, you should do the following:
- Build it into your online donation process seamlessly: If your donors are donating online, you need to clearly detail the benefits of Gift Aid and make the declaration form clear and simple to complete.
- Make it easy for people to donate in person: An online form on a device like an iPad is a simple solution. For anyone that struggles with digital devices, print out your forms to make it as easy as possible. Just make sure you check everything is in order!
- Promote Gift Aid on your social media channels: It’s important to educate your potential donors on what Gift Aid is and how it directly impacts your charity and the great work you do. Include numbers of how much you’ve raised in your posts, so donors can see how completing a quick form can really help your organisation.
- Donor cards: If you consistently collect Gift Aid donations in person in a charity shop or regular in-person events you can provide donor cards that have an individual’s unique donor ID on it. Then the next time they want to give via Gift Aid, it’s just a simple task of scanning their card.
- Train your staff and volunteers: If you’re collecting in-person donations and you want people to sign up to Gift Aid, it’s super important to train your staff and volunteers so they can quickly explain the importance of Gift Aid – think a 30 second elevator pitch. You also need to train them to thoroughly check declaration forms to ensure they’re properly filled out.
- Follow up: When donors make an online donation for example, they will provide some personal details, including their email address. If they didn’t complete a declaration form at the time of donating, you can always follow up with a quick email. Make sure you clearly and succinctly explain the importance of Gift Aid and how easy it is to donate.
The Importance of Gift Aid
No matter the size of your charity or organisation, an extra 25% in donations will always go a long way to helping you achieve your goals and further your mission. And with around £1.4 billion donated to charities every year through Gift Aid, it pays to run an effective Gift Aid campaign with timely and accurate claims made to HMRC.
Just think what you can do with that extra 25% in donations!