A timely blog on Charity Donations!
Given that CCF are working hard throughout October to raise as much money as possible for St Michael’s hospice, it is time for a long overdue blog on Charitable donations. Here follows the dos and don’ts.
1. If you are making a charitable donation, personally, i.e. not through a company, then you should only tick the ‘gift aid’ box if you actually pay UK tax. If you are a director of a UK company, who is paid a low salary and dividends, and does not pay any higher rate tax on the dividends, then this means you are not a UK tax payer! If you do tick the gift aid box, then you have to include the charitable donation on your tax return, and you will have to pay the tax to HMRC that the charity recovered via gift aid.
2. If you are not a UK tax payer and have a limited company, you might want to consider making the payments out of your company. If the charity is a registered charity, the donation qualifies for relief against your taxable profits. I.e. it is a tax deductible expense. This is subject to certain conditions, however simple donations to third party charities without any benefit received are allowable.
3. If you make a personal charitable donation and you are a higher rate tax payer, then you will gain tax relief on your donation. Your basic rate tax band will be extended by the gross amount of the charitable donation. If you pay tax at 40% you get back 20% of the gross donation and if you pay tax at 45% you get 25% of the gross donation. The gross donation is the value of the gift aided amount, plus the tax reclaimed by the charity from HMRC. E.g if you donate £100, the gross donation is £125.
4. Planning point, if you are a couple and one is a higher rate tax payer and the other is not, always ensure that the higher rate tax payer makes the donations to get the tax relief!