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So, how exactly does Gift Aid work?
Well, if you’ve ever given to a charity or a community amateur sports club, you might have seen the phrase ‘Gift Aid’ appear. It’s essentially a charitable donation that not only benefits the charity itself, but enables you claim tax relief back too.
Gift Aid is a type of tax incentive in the UK that encourages people to donate to charity and other good causes through tax-effective giving. Essentially, it means that these charities and non-profits can claim extra money from HMRC, generating additional funds for their cause.
While many people have heard of Gift Aid, not everyone knows how it actually works. Gift Aid can be claimed by filling in a form when donating to your charity of choice. There’s usually a box that you can tick that allows you to do this.
The charity or organisation can then claim an extra 25p for every £1 you donate, as long as the donation comes from your own funds. Essentially, you’re increasing the donation amount by 25% (if you’re a basic rate UK taxpayer).
No. Not at all.
In fact, Gift Aid allows the charity to reclaim the Income Tax paid on that ‘gift’ from the government, at no extra cost to the donor.
Here’s a quick example of how Gift Aid works:
Most employed people are eligible to claim Gift Aid, but there are a few exceptions to this rule. A charity can only claim Gift Aid when:
Your donations will only qualify if they’re not more than four times what you paid in tax in that tax year (which runs from 6th April to 5th April).
There are a few other instances where the charity cannot claim Gift Aid on your donation:
If you pay tax above the basic rate, you can claim the difference between the rate you pay and the basic rate on your donation. This can be done through your Self Assessment tax return, or by asking HM Revenue and Customs (HMRC) to amend your tax code.
If you’re self-employed, you’re still eligible to claim Gift Aid on your donation. It’s treated in the same way as gifts from employed individuals: paid from taxed income, and the charity will claim the relief on qualifying donations. All you need to do to claim the tax back is file your tax return.
Being self-employed also has an added bonus: you can claim tax relief on donations you make in the current tax year (up to the date you send your return). You might do this if you either want the relief sooner, or if you paid higher rate tax in the previous tax year, but don’t anymore.
Take a look at our Income tax calculator below to work out your tax bill for the year:
When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.
However you may be eligible for a tax refund when:
In your case when you earn £50,000:
You pay no income tax on first £12,570 that you make
You pay £7,286 at basic income tax rate (20%) on the next £36,430
No contributions on the first £9,568 that you make
You pay £3,549 in contributions (at 9%) on the next £39,432 that you make
You pay £159 in NI Class 2 contributions
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