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How does Gift Aid work?

  • 3 min read
  • Last updated 17 May 2022

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.

What is Gift Aid and how does it work?

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).

Wait, so, like free money?

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.

Gift Aid in practice

Here’s a quick example of how Gift Aid works:

  • Let’s say you’re a basic-rate UK taxpayer and you want to donate £100 to the charity The British Red Cross. You fill out the donation form and tick the Gift Aid box
  •  In the eyes of HMRC, your £100 will be treated as a gift that has been made after-tax (deducted at the basic tax rate). So, the total value of your gift would be £125
  • The charity can then claim this 20% back on your donation. £125 x 20% = £25

How do I know if I can claim Gift Aid?

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: 

  1. You make a donation from your own funds
  2. You’ve paid UK Income Tax and/or Capital Gains Tax during that tax year
  3. The amount of tax you pay is at least equal to the value of Gift Aid

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).

Are there any instances where it can’t be claimed?

There are a few other instances where the charity cannot claim Gift Aid on your donation:

  • If you’re a group – it can only be claimed by an individual 
  • On donations given on behalf of someone else or for a company
  • On donations that are given to family members or friends participating in an event where 👇
    • The charity is contributing to their costs
    • The donation was made in return for goods or services

Can I claim Gift Aid if I earn over £50,270?

Yes! 

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.

I’m self-employed, can I claim Gift Aid?

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:

Your situation

Outlined number oneOutlined number one
I am
Annual self-employed income
Self-employed expenses
?

Tax and profit

Outlined number two
  • Total earnings
    £50,000
    £1,000 tax-free Trading Allowance
    ?
  • Tax to pay
    £10,994
    £7,286 income tax
    £159 class 2 National Insurance
    £3,549 class 4 National Insurance
  • What you’re left with
    £39,006

How your income tax is calculated

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:

  1. You already made tax payments for the year but your annual income ended up less than planned
  2. You have done things that qualify for a tax relief (made private pension contributions, given to charity, etc.)

In your case when you earn £50,000:

Income tax breakdown

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

National insurance contributions breakdown

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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