HMRC recently reported that whilst the total amount of relief claimed under Gift Aid is rising, the number of charities claiming Gift Aid has fallen for the fourth year in a row. Although donor awareness of Gift Aid in the UK is fairly high (around 88%), it seems that not all charities are making the most of this important source of income.
Does your charity have good Gift Aid processes in place? Are you making most effective use of the Gift Aid scheme?
All charities need to make sure they get to grips with the following six Gift Aid essentials:
1. Charity tax status
To be eligible to claim Gift Aid, an organisation must be established for charitable purposes in the UK, registered with the relevant charity regulator (if required to do so) and run by ‘fit and proper’ persons. Obtaining charity tax status is via an application process to HMRC.
Gift Aid is only applicable to gifts. Gift Aid cannot be claimed on fees, event admissions or on any other payment in exchange for goods and services.
3. Money payment
Gift Aid can only be claimed on a money payment, whether by bank transfer, card, cash, cheque, or via a platform such as PayPal. The money payment must be the donor’s own money.
To be eligible for Gift Aid, any donation needs to be supported by a declaration from the donor which identifies the donation(s), includes the name of the charity, the initials and surname of the donor, their home address, a statement that the donor would like Gift Aid to be claimed and specific declarations about their eligibility as a taxpayer and understanding of their responsibilities. HMRC provide a template declaration that charities can use. You may still be able to claim on cash or contactless donations of £30 or less without a declaration under the Gift Aid on Small Donations Scheme, as long as you follow the conditions.
5. Benefit limits
Donors, or those closely connected to them, sometimes receive small benefits in the form of a product or service as a consequence of making a donation. Such benefits don’t jeopardise the eligibility of the donation for Gift Aid as long as they fall below certain limits.
6. Audit trail
It is important to keep good records, including a trail between the identification of the donor (giving the gift) and the amount banked, ensuring that a valid declaration is in place along with a record of any donor benefits. Penalties for claiming Gift Aid incorrectly can be significant, so make sure your process is well planned and organised.
HMRC’s guidance on Gift Aid is important for all charities to read and contains more detail behind each of these criteria.
Making the most of Gift Aid
Once you’ve got the Gift Aid essentials sorted, make sure you communicate effectively with your donors at every opportunity. Encourage your donors by demonstrating the difference that Gift Aid makes to your charity. Make it easy for them to respond.
Maximise your opportunities to thank donors for their gifts and make sure they know that you are able to claim Gift Aid, not only on current and future gifts but retrospectively on eligible recent gifts too.
Educate higher and additional rate donors on the benefit of being able to claim extra tax relief on their tax returns. This often encourages these donors to give more to your charity.
What does the future hold for Gift Aid?
Many in the sector argue that simplification of the Gift Aid system is long overdue. The government recently announced that HMRC will continue to engage with the charity sector to improve the way Gift Aid works. Reform may be on the way…
Meanwhile, getting to grips with Gift Aid is of critical importance, if your charity wants to make the most of its available resources.
Need some support?
Burton Sweet has a longstanding commitment to charities and civil society organisations, offering practical, professional and passionate support. We want to assist you, so you can deliver effectively for the communities you serve and show the good you do.
If you would like some guidance on any aspect of Gift Aid, the Gift Aid on Small Donations Scheme, or are interested in our bookkeeping and management accounts preparation services, please get in touch with our Head of Charity Development, Ed Marsh (01179738441):