At the turn of the tax year, it's time to review whether you are making the most of tax-effective giving to enhance your income, or if you could be making more of Gift Aid, payroll giving and share giving.
During recent high-profile fundraising appeals such as the DEC's tsunami appeal and Comic Relief, much attention was paid to Gift Aid, which brought about millions more pounds in donations. As the most widely used form of tax-effective giving in the UK, Gift Aid enables charities to reclaim the basic rate of income tax against the value of the gift, raising the value of donations by as much as 28 per cent. Higher-rate taxpayers are also entitled to reclaim 23p in tax relief from every £1 donated - an additional incentive for them to support you in this way. It's a simple scheme with minimal running costs, and reclaiming the tax is straightforward.
Where Gift Aid is beneficial in raising 28 per cent extra, payroll giving offers unique benefits, providing charities with a regular, reliable and long-term income stream, no administrative burden and a strong link to local businesses.
Payroll giving enables givers to donate straight from their gross salary, before tax is deducted. So for a basic-rate taxpayer wanting to give a £10 donation, the same amount will be taken from the gross salary but they will benefit from a reduction in their income tax liability of up to 40 per cent.
The scheme has achieved success with many larger companies, but less so with smaller businesses. The launch of the recent Payroll Giving Grants programme has provided a route to market to smaller companies and is already yielding results. Smaller companies and charities that join the scheme are now eligible for a grant of up to £500, and the first £10 donated by their employees each month is being matched by the Government, pound for pound, for the first six months after the employee signs up. This programme runs until the end of December 2006 - the time limit serves as an added incentive to attract employers and donors to the scheme within the next couple of years.
Share giving offers another fundraising source and can be a way to target 'virgin' supporters. Donors giving shares to charity are entitled to claim income and capital gains tax relief on their share gifts. So, if a higher rate taxpayer gives £1,000 worth of shares to charity, they will pay £400 less in income tax that year.
Tax-effective giving is best practice. It's about making the most you can from donations, professionalism in fundraising and giving sophisticated options to donors that will strengthen your relationship with them and help to promote a regular income stream.