Disclaimer: While every effort has been made to ensure the accuracy of the information contained in the Pink Book, we regret that we cannot be responsible for any errors. The Pink Book contains general information about laws applicable to your business. The information is not advice, and should not be treated as such. Read our full disclaimer.
- Businesses are only eligible to claim Gift Aid if they are registered charities.
- Donations eligible for Gift Aid can only be made by people paying Income Tax and/or Capital Gains Tax in the UK in the year that the donation is made.
- Donations made in exchange for the provision of goods or services are not eligible for Gift Aid, and there are special rules for Gift Aid applying to admission tickets.
- Gift Aid can be a complex area, and it is advisable to contact your accountant or financial advisor to discuss what types of donations you can claim Gift Aid on.
To qualify for Gift Aid, a business must be a registered charity. For information regarding establishing a charity, see the Income tax, VAT and legal form of business section.
Charities can use the Gift Aid scheme to claim an extra 25p for every £1 that people donate. All donations must be in a monetary form such as cash payments, electronic payments, cheques or bank transfers – so an eligible donation cannot be the monetary equivalent of a donated item such as food, books, equipment or labour.
A donation qualifies for Gift Aid if it is given to the charity by an individual who has paid, or will pay, UK tax. These restrictions also mean that Gift Aid cannot be claimed for donations which are made by overseas visitors or by businesses.
Eligibility criteria for donations
In addition to being made by an individual who has paid, or will pay, UK tax, donations must also satisfy all of the following conditions:
- The gift is not subject to a condition as to repayment.
- The gift is not a Payroll Giving donation.
- The gift is not deductible from income for tax purposes.
- The gift is not part of an arrangement for the charity to acquire property from the individual or a connected person.
- The gift is not a payment for services, rights or goods.
The fact that a gift is not a payment for goods or services is important, as it means that any payment provided for things such as purchasing a raffle ticket or undertaking some work (for example painting a house or providing staff for an event) are not eligible for Gift Aid.
There are special rules if you want to claim Gift Aid on your entrance fees. Generally, entrance fees to visit and view your charity property do not qualify for Gift Aid because they are a payment for a service and not a gift.
However, if as a consequence of a donation, you allow a donor the benefit of a right of admission then, providing one of two conditions is met, the value of that benefit may be disregarded and the donation may qualify for Gift Aid.
These two conditions are:
1. The annual right of admission rule: a donation is made and in return you grant a right of admission to the donor (and possibly the donor’s family) for at least a year.
Example: a person pays a £20 donation to become a member which entitles them to pay only 25% of the usual entrance fee every time they visit over the next year. In this case, the £20 is a donation on which Gift Aid can be claimed, but the 25% entrance fee they pay each time they visit is not eligible for Gift Aid because it is a payment for entry.
2. The admission charge plus 10% rule: a donation is made of at least 10% more than the cost of admission to the general public, and in return you provide the donor (and possibly the donor’s family) with admission to the premises on the same basis as the general public.
Example: an admission ticket costs £10 and is not eligible for Gift Aid. However, if a person pays £11 for that ticket then the whole £11 is eligible for Gift Aid as the person has paid 10% more than the ticket’s value.
The rules for Gift Aid can be complex and there are also special rules for:
- Funds from sponsored challenges, for example overseas treks or marathons;
- Charity membership fees;
- Charity auctions;
- Charity events;
- Volunteer expenses donated back to your charity or CASC.
It is therefore advisable to consult your accountant or tax advisor on the eligibility of your income-generating activities.
How much can be claimed through Gift Aid
There is no limit to the amount that a person can donate, and that a charity can therefore claim Gift Aid on. However, in the financial year that the donation is made, the person donating the money must pay Income Tax or Capital Gains Tax (or both) in the UK, that is at least equal to the Income Tax treated as deducted from the total of all their Gift Aid donations made in the same tax year. If a person has not paid sufficient tax to cover their Gift Aid donation, they are responsible for paying any difference.
Because of the donor’s potential liability, you must get them to make a Gift Aid declaration that gives you permission to claim Gift Aid against the tax that they have paid.
A Gift Aid declaration must include:
- The donor’s full name and home address;
- The name of the charity;
- The amount of the donation;
- Confirmation by the donor that the donation should be treated as a Gift Aid donation.
In addition, the charity must be able to prove that it has given an adequate explanation to the donor of the eligibility criteria and implications associated with making a Gift Aid donation, including the responsibility for paying any difference should the donor not have paid sufficient tax to cover the Gift Aid claim. This explanation can be included on a Gift Aid declaration, but can also be made separately. If the explanation is made separately, this needs to be recorded in a way that it can be linked to the declaration.
It is a legal requirement that you must keep records that enable you to show HMRC:
- An audit trail linking each donation to an identifiable donor who has given a valid Gift Aid declaration.
- That all the other conditions for the tax relief are satisfied, for example provision of benefits.
These records must be kept for six years after the end of the accounting period that they relate to.