Gift Aid need to declare on personal tax return - does this give me any tax relief?

[Greg@CapitalCity]

Yes, on donations you make personally you will get relief, but only if you pay personal tax. As an example,
(1) Contractor A gets a salary of £7,475, and pays themselves dividends of £31,000 net. There is no personal tax to pay, and so no personal tax relief from charity donations;
(2) Contractor B gets a salary of £7,475 and pays themselves dividends of £36,000 net. The personal tax charge would be £1,125. Any charity donations you make help reduce this personal tax charge. Effectively what happens is your basic rate limit is increased by the grossed up charity donation - so if you gift £100, your basic rate limit is increased by £125, which means £125 of gross dividends are saved from the higher rate dividend tax.

And of course, whether you get personal tax relief of or not, the charity still get to gross up the donation they receive - so your donation of £100 will be worth £125 to the charity.

[northernladuk]

The following was found from Google <snip>

... and before you ask your wife is not a registered charity...

Making charitable donations from pre taxed income Introduction

Donating money to charity via your company can be a very tax efficient way of supporting your chosen cause. This article explains the rules and regulations associated with charitable donations.

Tax Relief
Any business can get tax relief when they give money to charity, whether it is a “one off” payment or a regular Gift Aid Scheme.

There is no longer any need to make payments under the old Deed of Covenant Scheme in order to obtain tax relief.

What/who qualify as a charity?
To claim tax relief under the Gift Aid Scheme, the payment must be made to a registered or other charitable organisation. Special rules apply for special situations, including educational school trips, church collections, educational trusts, membership subscriptions and adventure fund raising events. You cannot however donate money and obtain tax relief if the receiving party is "connected", i.e. direct relative, business partner, etc.

Charitable Donation or Gift
If your payment does not qualify as a charitable donation, it may be possible to still claim tax relief if it may be considered a business or staff gift. See "Buying Gifts for Employees and Clients ".

Donation Limits
There is no limit to the amount of charitable donations that a business can give, although the mechanics of obtaining tax relief differs, depending on whether you are operating via a limited company, as a sole trader, or a partnership.

Limited company rules
The majority of contractors trade via a limited company and the simplest method of donating is therefore through the Gift Aid Scheme.

The amounts paid to the charity are dealt with as a “charge” when working out company profits for corporation tax purposes. The company makes the full payment to the charity. No deductions are made for tax from the payment and the charity does not claim back any tax on the gift.

At one time, it was necessary to provide Gift Aid certificates to the charity or provide a form of declaration but this is no longer required under the current scheme. If your company has no corporation tax liability for the accounting period in which the donation is made, there are special rules regarding how any loss created by the donation can be used.

Contractors Using Umbrella Schemes
If the umbrella company will co-operate, you could ask them to make the donation and adjust your salary accordingly. If they will not co-operate, you would need to make the donation personally and then claim Gift Aid Relief through your tax return.

Contractors Caught By IR35
Donations can still be made for those contractors caught by IR35. See the Inland Revenue website for details.

HMRC Enquiries
In the event of a HMRC query/enquiry, it may be necessary for you to show evidence of the payment to the charity.

Most charities will issue a receipt for payments made and these should be kept on your file like any other expense records. However, a receipt is not required in order to obtain Gift Aid Relief. The clearance of your cheque and a copy of the Gift Aid certificate which the charity will require is sufficient.

The vast majority of gifts to charity will be monetary donations but special rules apply if the donation is of land, buildings, shares or other non cash assets. If you are intending to make such a donation, you will need to obtain professional advice in respect of the tax relief arising and any capital gains tax implications.

Sponsorship payments
Your company may choose to sponsor a charitable activity and can claim relief for any sponsorship payments, provided the payments are made wholly and exclusively for the purposes of your trade and is not of a capital nature.

Qualifying sponsorship payments are deducted from trading profits for corporation tax purposes and not treated as a “charge” as above in the case of charitable donations.

No relief is available for sponsorship payments unless the “wholly and exclusively” test is met.
.For example, if you make a sponsorship payment to a charitable activity, e.g. your local church or sports club, you cannot deduct the payment when calculating your trading profits of the business for tax purposes. Even if the payment is partly for commercial reasons and partly for charitable reasons, you cannot deduct it in calculating your trading profits of the company for tax purposes. You may however be able to obtain relief for such payments if they are made as Gift Aid donations.

[richy]

Hello

I have read about Gift Aid on HMRC site:

HM Revenue & Customs: Keeping records of your gifts to charity

Also Wikipedia:
Gift Aid - Wikipedia, the free encyclopedia

I do wonder though, do I actually receive any relief? I've been filling in on personal tax return for years.

The HMRC article mentoins the higher-rate 40% band. If I'm not in that band, do I gain anything? I understood it is just the 20% of PAYE income tax I've paid that the charity then claims back from HMRC. Is that so?

As the HMRC site mentions the 40% higher-rate band. Would I not have to use my whole £42,475 (i.e. £35,000 plus personal allowance of £7,475) first in gift aid to be bumped in to the 40% band? I certainly wish I could donate 42k to charity!!

The Gift-Aid donations I have, are things like London Zoo tickets, Natural History Museum tickets, and the odd TV appeal.

Cheers, ric