A business guide to charitable giving

From Gift Aid to Payroll Giving, make sure you choose the best option for donating to charity 

Gift Aid is the main vehicle for tax efficient giving to charities. It applies to any donation whether large or small, regular or one-off.
Simply by confirming that they are taxpayers, donors can ensure that their chosen charities can reclaim the basic rate of income tax on all their donations, equal to 25% of the amount donated.
This confirmation has only to be completed once for each charity (it can even be done by telephone or internet) and remains valid for as long as the donor remains a taxpayer.
As an added boost for donors, higher and additional rate taxpayers can claim for themselves the difference between basic rate and their effective rate of tax against their own income tax or capital gains tax liabilities, reducing further the net cost of the donation.
This relief may be carried back to reduce the tax payable for the previous tax year.
Example
You give to charity
£1,000
Charity reclaims tax
£250
Total value of your gift
£1,250
Tax reduction for higher rate taxpayer £250, tax reduction for an additional rate (45%) taxpayer is £312.50.
So a gift worth £1,250 to the charity could cost you as little as £687.50.
CAF charity card account
This is a very flexible scheme organised by CAF (Charities Aid Foundation). You can open an account with as little as £10 a month by direct debit or with a single payment of £100.
The account is in effect a ‘charity cheque book and debit card’ and can be used to make donations easily – spontaneously or regularly – by phone, by post or online – to your preferred charities.
Tax is recovered at the basic rate and added to your account. As with Gift Aid, higher rate taxpayers can reclaim the difference between the basic and higher rates of tax.
Because CAF deduct 4% for administering most accounts, a £100 donation toCAF equals £120 to donate to chosen charities.
Payroll giving
This scheme allows you to make gross donations to charity (deducted from your salary before tax is calculated). There is no statutory minimum or maximum limit, although individual schemes may impose a lower monthly donation limit.
Example
You give from your gross pay
£50
Charity receives
£50
Actual cost to basic rate taxpayer
£40
Actual cost to higher rate taxpayer
£30
Actual cost to additional rate taxpayer
£27.5
Tax refunds
Self-assessment tax payers may nominate a charity to receive all or a specified amount of an anticipated tax repayment. The donation will be passed direct to the charity byHMRC once the tax return or claim is processed.
Gifts in land
Gifts of certain shares and securities, land and buildings to a charity attract income tax relief as well as capital gains tax (CGT) relief.
Example
You give shares valued at
£1,000
Income tax saving
basic rate taxpayer
£200
higher rate taxpayer
£400
additional rate taxpayer
£450
Potential CGT saving
£100 or £200
There is a similar corporation tax relief for gifts by companies.
Deeds of covenant
With the enhancement of Gift Aid, there is no longer a separate tax relief for payments made under a deed of covenant. Covenanted payments by individuals are now dealt with under the Gift Aid measures.
Condies, which has offices in Edinburgh and Dunfermline, is an expert in charitable giving. To discuss this, or any other aspect of tax, accounting or finance, get in touch at info@condies.co.uk or on 01383 721421.
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