Now that the Government has ended the 10 per cent supplement on gifts made to charity through payroll-giving schemes, is it worth continuing to encourage donors to give tax effectively? Yes of course. So far, less than a third of donations are made tax-effectively. It is estimated that if every donor were to ensure that their donations were given tax-effectively, then charities would receive an extra £900m a year. And there are more ways of donating tax-effectively than you might think. It can even allow donors to reduce their tax bills.
I know about Gift Aid and Payroll Giving. What else is there? Tax can be claimed back by donors on gifts of shares, land and property. And, of course, registered charities can claim tax back on donations of money either via Gift Aid or payroll giving.
Tell me how Gift Aid works If you are a taxpayer, then it is assumed whenever you make a donation that you have already paid tax on the donation.
Gift Aid allows charities to reclaim this tax that the donor has already paid for their charitable purposes. This actually means that the charity can claim 28 per cent of the donation from the Inland Revenue (though the basic rate tax is at 22 per cent, the donation is paid net of tax.
A simple calculation that works 'backwards' through the tax process arrives at the 28 per cent figure.) For audit purposes, the donor must give a statement that includes their name and address, and confirmation that they are a UK taxpayer, although there is no standard way of doing this.
What about payroll giving? This is where an employee donates their money before it has arrived in their bank account and before tax has been deducted.
So for a basic rate taxpayer, to donate £10 to charity they only have to donate £7.80.
Is it true that if you donate shares to a charity then you can reduce your tax bill? Yes. For instance, if you are a higher rate taxpayer and you give a gift of £100-worth of shares, then your tax bill will be reduced by £40 and you will not have to pay Capital Gains Tax if the shares have increased in value since you bought them. The same applies to people who pay basic-rate tax and you can also claim tax relief on gifts of property.
Legacies can also help to reduce inheritance tax bills.
Useful websites for more information about tax-effective giving:
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