Charitable donations and tax relief

The “Charity Tax Commission” has published its report.  It’s not an official government report – the report was commissioned by the National Council for Voluntary Organisations (“NCVO”), though it is independent of the Council.

That said, it was chaired by Sir Nick Montagu, a past Chairman of HMRC who may still have friends in high places; and both the Treasury and HMRC had observers at the Commission’s meetings.  So – who knows – the report might be a little more influential than these things sometimes are.

It makes some recommendations as to how higher-rate as well as basic-rate tax relief might be directed to charities; suggests establishing a single “Universal Gift Aid Declaration Database” to replace the need to make a separate declaration for each charity; and has something to say about extending VAT and business rates reliefs.  Full details are available via the NCVO website.

Meanwhile, let’s share one or two observations on tax-efficient charitable giving.

Tax relief on personal giving via Gift Aid is given partly by deducting basic rate tax from the payment and partly by giving relief under self-assessment.  That makes it hard to work out the true cost of personal giving.

Assume that you want to give £100 out of your post-tax income to charity: in other words, to give £100 that you would otherwise have been able to spend on wine, women, song etc.

If you’re a basic rate taxpayer, it’s straightforward.  You give the charity £100.  If the donation is made under Gift Aid, the charity will get an extra £25 at no cost to you.

If you’re a higher-rate taxpayer, it’s a bit more complicated.  Giving the charity £100 under Gift Aid will deplete your post-tax income by just £75.  If, like your basic-rate friend, you’re prepared to sacrifice £100 of post-tax income, make your donation £133.  And if you are an additional-rate taxpayer, liable at 45%, you can donate a bit over £145.  In each case, by increasing the donation, you are keeping your post-tax cost constant and effectively giving the charity the full benefit of all the tax relief you get on the donation.

Alternatively, if you operate your business through a company, there’s a simpler solution: have your company make the donation.

  • No need to bother with a Gift Aid declaration;
  • No deduction of tax at source;
  • Avoid the additional tax or National Insurance Contribution cost of extracting money from the company to make the donation personally;
  • No need, when preparing your personal tax return, to scrabble around to find what Gift Aid donations you’ve made in the year.

Just make the payment, record it and vouch it in the company’s books and take a deduction for it against the company’s taxable profits.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

NICOLA HALL

BILSHAN MENSAH

Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.

ELANA DIMMER

Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.

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