Christmas, a time for giving!
Christmas, a time for giving!
Christmas is a time when people think about those less fortunate than themselves and often consider donating to charities. The way in which you make gifts is important, as the value of your gifts can be significantly increased if done appropriately – enabling charities to do more good work.
Giving through gift aid declaration, charities can claim basic rate tax relief on your gift from the government at no additional cost to you, provided certain conditions are met. A gift of £80 can become £100 to the charity simply by making a declaration.
Higher rate and additional rate taxpayer relief
Extended tax thresholds
Higher and additional rate taxpayers can also claim relief for gift aid payments, which extends their basic and higher rate tax bands by the gross charitable donation, therefore increasing the proportion of their income taxed at the lower rates.
For example, if a higher rate taxpayer (40%) donates £100 to charity, their basic rate band is extended by £125. The charity claims the 20% tax from HMRC as usual and the taxpayer also benefits from the donation as the £125 of income that would have been taxed at 40% is now taxable at 20% by making the Gift Aid declaration. The result is that the taxpayer receives additional tax relief at 20%.
Similarly, for additional rate taxpayers (45%), income tax relief increases to 25%.
Even more relief for high earners (between £100,000 and £125,000 per year)
The tax-free personal allowance (£12,500 for 2019/20) reduces by £1 for every £2 of income above £100,000. However, Gift Aid donations extend the £100,000 threshold, such that the personal allowance is restored by £1 for every £2 of gross Gift Aid donations. The combined effect of the extended basic rate band and the restored personal allowance gives an effective rate of tax relief of 60%.
Getting tax relief sooner
The easiest and quickest way to claim relief is to complete a Self-Assessment Tax Return and include details of any Gift Aid donations made during the year.
In addition, Gift Aid donations you make in the current tax year may be carried back to the 2018/19 tax year, if made before the tax return filing deadline of 31 January 2020. Therefore, if you have not already filed your 2018/19 tax return, there is still time to carry a gift back and claim the relief.
If you make frequent or regular gifts you may wish to consider opening a CAF (Charities Aid Foundation) account which enables you to tax claim relief on payments made into the account.
The basic rate tax credit is reclaimed by CAF and paid directly into your account, enabling you to make larger gifts whilst reducing the administration burden on charities and enabling you to give anonymously if you wish. For some larger charitable projects, setting up a private standalone charity or establishing one under the CAF charity umbrella may be appropriate.
Payroll giving scheme
If you run a business you may wish to consider introducing a payroll giving scheme which enables employees to make gifts to the causes that matter most to them out of gross income, in effect costing them less to give more. Research shows working for a philanthropic organisation aids staff retention and happiness which is good for you too!
Creaseys charity of the year
We are proud to continue to support Tunbridge Wells Mental Health Resource (TWMHR) in 2019 with a cake bake sale, craft and games clubs and a rounders’ tournament amongst other events held throughout the year, raising over £6,000 to date.
If you are interested in spreading some Christmas cheer, please call your usual Creaseys contact on 01892 546 546 and we’ll help make sure it’s done in the best way for you and your chosen charity.