Clause 1 provides when a top-up payment is payable and how to calculate the amount due.
Subsection (1) of clause 1 stipulates the conditions for when a charity or CASC is entitled to a top-up payment from HMRC. Clause 17(1) provides that a “charity” includes CASCs and certain other bodies. In particular the charity or CASC must be an eligible charity or CASC for a tax year and make a successful Gift Aid exemption claim in respect of gifts made to it in the tax year and it must make a claim in respect of small donations made to it in the same tax year.
Subsection (2) of clause 1 provides a formula for calculating the amount of a top-up payment. The amount payable is based on the basic rate of income tax so, for example, a small donation of £1 attracts a top-up payment of 25p where the basic rate of income tax is 20%.
Subsections (3) to (5) of clause 1 restrict the amount of top-up payments a charity or CASC may claim by reference to a “maximum donations limit”. The maximum donations limit on top-up payments is normally £5,000 of small donations collected in each year, subject to certain conditions for charities and CASCs set out in clauses 4, 6 and 9. The amount of small donations on which a top-up payment may be claimed is restricted to twice the amount of donations on which the charity or CASC claims Gift Aid for the same tax year. The effect of this provision is to require Gift Aid donations to be matched to small donations at a rate of 50%. So a charity or CASC making a top-up payment claim in respect of £5,000 of small donations must make a claim for Gift Aid on at least £2,500 of other donations received in the same tax year.