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What is Gift Aid and how does it work?
03 Oct 2024by Paul Rubens
Gift Aid is one of the most important government initiatives for charities, since it offers the potential for charities to increase their fundraising by up to 25%
Gift Aid allows charities to claim an extra 25p from HMRC for every £1 donated by most UK taxpayers.
As you might expect, there are some restrictions to what you can claim and a few hoops that you have to jump through in order to claim Gift Aid from HMRC. So let’s look at how Gift Aid works in a little more detail.
Gift Aid and tax
Your charity can claim back the 25% Gift Aid from most donations made by people who have paid UK Income Tax or Capital Gains Tax during that year. There is a restriction on how much can be claimed. You cannot claim back in Gift Aid more than the donor themself has paid in tax in a given year.
What you can’t claim Gift Aid on
There are a number of types of donation on which you cannot claim Gift Aid. These include donations:
- from limited companies
- made through Payroll Giving
- that started as loans, but no longer need to be repaid
- from charity cards or of vouchers
- received in return for goods or services
- received before you were a recognised charity
Special Gift Aid rules
Although you can claim Gift Aid on most donations that are not excluded above, there are some special rules for:
- funds from sponsored challenges
- charity membership fees
- church collections
- selling goods on behalf of individuals
- charity events or to view charity property
- charity auctions
- volunteer expenses donated back to your charity
- funds raised through charities involved in running schools
Gift Aid declaration
Before you can claim Gift Aid, the donor must make a Gift Aid declaration giving you permission to claim back the 25%. The declaration confirms that the donor has paid at least the amount that you intend to claim in Income or Capital Gains Tax that year, and also that they agree for you to claim Gift Aid.
This involves some administrative work, although the process can be largely automated for online donations. At the bare minimum, the form must include:
- the name of your charity
- the donor’s full name
- the donor’s home address and postcode
Here are some sample Gift Aid declarations that you can tailor to your charity:
Your charity is also obliged to hold on to Gift Aid declarations for six years from the time of the most recent donation.
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Getting Gift Aid on small donations
The government appears to recognise that it is not practical to get a Gift Aid declaration when people make small cash donations, or when they make quick contactless donations.
The good news is that your charity may be able to claim up to £8000 per tax year in Gift Aid from cash donations of £30 or less, or contactless card donations of £30 or less, through a special scheme called the Gift Aid Small Donations Scheme (GASDS).
In order to be eligible for GASDS, your charity must have claimed Gift Aid in the same tax year and you must not have had a penalty in the last two tax years on a Gift Aid or GASDS claim.
There’s also a restriction on how much GASDS you can claim in one tax year (aside from the £8000 ceiling). You can only claim on £1,000 worth of donations through GASDS for each £100 of Gift Aid donations in the same tax year.
GASDS record keeping
Although GASDS enables your charity to claim Gift Aid on small donations without a Gift Aid declaration, there is still some administrative work to do before and after you claim. Specifically, your charity must record:
- how much money was collected
- the date the money was collected
- that no individual donation was greater than £30
You also need to keep the records that your contactless terminal produces to verify the contactless donations. You will need to keep those records for a period of six years from the end of the tax year which they fall in to.
How your charity can claim Gift Aid
The easiest way is to make a Gift Aid claim online
There are two ways that you can do this: using HMRC approved software, or by providing a spreadsheet of your donations. If you prefer to apply by post, you will need to call HMRC on 300 123 1073 to request a form ChR1, but if you are claiming for more than 1000 donations then you must use software.
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