Donating to Charity
The UK tax system provides a number of incentives for both individuals and businesses to give to charity.
Briefly, there are three ways in which individuals can give to charity tax effectively
Payroll Giving provides tax relief at source for individuals who give to charity, by direct deduction from their pay.
Once an individual has signed up to the scheme the employer simply deducts the relevant amount from their pay before deducting tax under PAYE (but after deducting NICs) and sends the payment to an approved payroll giving agency. The agency then distributes the amounts donated to the charities selected by the individual.
Individual donors can make payments, large or small, regular or one-off to UK charities under Gift Aid. The donor simply gives the charity a declaration, which can be in writing or given orally. The charity can usually provide a declaration for the donor to complete. The declaration requires the donor to confirm that they will pay an amount of income tax or capital gains tax, equal the tax the charity claims on their donations, for the year in which the donation(s) is made.
Gift Aid allows the charity to reclaim the basic rate tax on the donation from the H M Revenue and Customs. This means that the donation is worth an extra 28% to the charity. Donors who are liable at the higher rate of income tax can claim the difference between the higher rate, of 40%, and the basic rate of 22% on the grossed up donation.
Individuals who complete a Self-Assessment return can also donate any repayment arising directly to charity through SA Donate. The donation can also be made under Gift Aid as long as sufficient tax has been paid for the year in which the donation is made
- Gifts of land, buildings, shares or securities
Tax relief is available to encourage gifts of land, buildings and certain shares and securities to charity.
Individuals can claim a deduction for the gift against their income for income tax purposes. This is in addition, to the exemption from capital gains tax, which is available for gifts of investments to charity.
Donors may need to retain documentary evidence of their donation of (or sale at under-value) the investments to a charity. This evidence would normally include a copy of the dated stock transfer document and any correspondence in connection with the gift. For gifts of land and buildings you will need to obtain a certificate from the charity.
Help sheet IR178 provides more detail about this tax relief.
Businesses can also give tax effectively to charity in a number of ways: -
- Gift Aid
Companies make donations under Gift Aid by simply making a payment to a charity. The company can then deduct that amount as a charge against their profit for corporation tax purposes, for the accounting period in which the donation was made. The company does not have to give a Gift Aid declaration.
Wholly-owned subsidiaries of charities can make donations to their parent charity and carry back the deduction, up to 9 months, into an earlier accounting period.
Sole traders, or partners in a partnership make Gift Aid payments as individuals, as set out above.
- Gifts of land, buildings and certain shares and securities
Companies can claim a deduction for a gift of land, buildings and certain shares and securities as a charge against their profit for corporation tax purposes, equal to the value of the investment donated. This is in addition, to the exemption from corporation tax on chargeable gains, which is available for gifts of investments to charity.
- Giving business assets
Relief is available to businesses for a gift of an article to charity that is either: -
- an item manufactured or sold in the course of the trade, or
- machinery or plant used in the course of the trade.
The relief is available to companies, sole traders and trading partnerships.
For further information on ways in which businesses can give tax effectively to charities please see our help sheet IR64.
Frequently asked questions about donations to charity
How do I turn my donations into Gift Aid?
You must give the charity concerned a Gift Aid declaration. This may be given orally or in writing. Many charities have produced declarations containing their details so you may wish to ask the charity for a copy of this. If you give a declaration orally, the charity may write to you confirming the details and giving you thirty days to withdraw the declaration. Please remember that you must pay income tax and/or capital gains tax, at least equal to the amount that charities will reclaim on your donations, for the year in which a donation is made.
Further details about Gift Aid declarations can be found at Chapter 3 of our detailed guidance notes
Where can I get a declaration?
Most charities have their own versions but we supply a model (PDF 17K) declaration, which can be used.
Can I use Gift Aid when visiting a charity property?
From 6th April 2006, when you visit a charity that opens its premises to the public, you may be able to make a Gift Aid donation instead of paying an admission fee, if either of the following circumstances apply:
Your donation is at least 10 per cent more than the admission charge
The donation secures admission to the property for a twelve-month period, for example through a season ticket or a membership scheme.
You will need to complete a Gift Aid declaration (obtainable from the charity) if you want to Gift Aid your donation.
Can I Gift Aid my membership subscriptions?
It is possible for membership subscriptions to be paid under Gift Aid. You should ask the charity concerned if it has been agreed that membership subscriptions qualify. The Gift Aid benefit rules can disqualify payment under Gift Aid if the extent of benefits provided to members exceeds certain limits.
How do I claim my higher rate tax relief?
You have to make an entry on your Self-Assessment return.
Can I donate anonymously?
Yes, but for the charity to be able to claim repayment under the Gift Aid scheme they need to be able to link the donation with a declaration given by the donor. If a donation is made anonymously the charity will not know if it came from a donor for whom they have declaration.
Donors (Individuals and companies)
Can I give in other ways?
Apart from the Gift Aid scheme, relief is available to donors for gifts of land, buildings and certain shares and securities gifts may be made under the Payroll Giving Scheme, or if you complete a Self Assessment return you can donate any repayment arising directly to charity through SA donate.
Will these give the charity some tax back?
Relief for gifts of land, buildings, shares and securities is only available to the donor. Payments made via the Payroll Giving scheme will not result in a tax repayment to the charity. If you use SA donate you can Gift Aid that donation, as long as you pay sufficient tax for the year in which the donation is made.
Can I donate time instead of money?
Charities are only able to claim tax back on monetary donations. Some relief is available to businesses that second employees to charity help sheet IR64 provides more detail.
What records do I need to keep?
Individuals should keep details of all Gift Aid payments made in a tax year (6 April to 5 April), the name of the charity(ies), the amount and date of payments.
Companies, should keep a normal accounting record of the amount paid to the charity. The company may also receive some form of acknowledgement of the donation from the charity, which will support the company's claim for relief.
Can I obtain confirmation of the value of a gift of land or buildings to a charity?
If you wish to have the valuation of your gift to charity checked, you can do so by writing to your own Tax Office. Please note that this facility is only available after a gift has been made and you wish to check the valuation before claiming relief on your return. We cannot provide a valuation of your property, we will only check a valuation that you provide. You will need to request a Post Transaction Valuation Check for the purposes of a gift of land or buildings under S587B ICTA 1988. Details of the information you need to provide to support such a request are available in help sheet IR178.