The tax incentive scheme originally applied only to sizeable cash donations, but has since expanded to enable UK charities to claim an additional 25p for every £1 of a wide range of eligible donations and now sees more than £1 billion go into the coffers of charities each year.
However, with charities missing out on an estimated £560m of potential relief through the scheme as recently as 2018, there still remains an opportunity for charities to help their donors generosity go further.
The process of seeking the approval of donors for their tax to be claimed back is thankfully relatively resource-light, with the main requirement being for them to sign a Gift Aid declaration that provides their name, address and the charity they are donating to.
Beyond this, they must also be a UK taxpayer, with the amount able to be claimed back being limited to a maximum of four times the amount of income and capital gains tax they paid in the relevant year – while additional claims can be applied to any previous donations made within the previous four years.
At the same time as the value of eligible donations has been all but removed, the scheme's variety of donation methods that qualify has greatly expanded. Charities can now claim the tax back on everything from church collections and charity auctions, to sponsored challenges and viewings of charity-owned property.
While special rules apply in these cases, such as claims are only eligible up to the value of the donation that will be given as part of a sponsored event and don’t qualify against any additional costs. The changes mean that charities can further increase its value.
Expanding the potential pool further, the Small Donations Scheme (SDS) enables claims to be made on cash donations and contactless card donations of £30 and below.
This aspect of Gift Aid, which can be used to earn up to £2,000 in the current tax year and £1,250 for previous years, is open to all charities that have claimed Gift Aid in the same year, although they must not have been penalised on their Gift Aid pledges within the previous two years.
The claim can even be up to ten times the value of the charity’s general gift aid claim, meaning that those heavily reliant on small cash donations are not unduly penalised.
While there is no need for a Gift Aid declaration under the SDS, details of the total cash donations, date of collection and the date they were paid into a bank account must be kept in order to submit a claim.
When it comes to submitting the claim to receive the funds, a charitable trust can claim on any outstanding donations within four years of the end of the tax year it was received in. For other types of organisation, such as a limited company, donations made as far back as the end of its accounting period four years ago.
Once the details of all qualifying donations have been collected, the claims procedure can be submitted online through either pre-approved commercial database software, which is required for claims of more than 1,000 donations, or in spreadsheet form via the HMRC website and will be paid within four weeks.
A postal submission through a ChR1 form is also possible as long as the number of donations is below 1,000 - although the payment may take an extra week to be processed through this route.
Following the successful processing of any claim and the receipt of funds, the records of all relevant donations must be kept for a further two years in order to comply with the governance arrangements of the scheme.
For more information about Markel Care, a specialist insurance package which includes a range of support services as standard, such as tax consultancy, please contact your local broker.