What is Gift Aid? How does it work? What are the rules? 

This is a freeview At a glance guide.

HM Revenue & Customs (HMRC) pays around £1.3 billion a year to charities and other qualifying bodies through Gift Aid. This introductory guide is not intended to comprise exhaustive coverage of the subject. Reference should be made to the legislation for all technical and practical questions. 

At a glance

At a glance

What is Gift Aid?

Gift Aid is an Income Tax relief designed to benefit registered charities and Community Amateur Sports Clubs (CASCs).

  • Unless otherwise indicated in this guide, the term 'charity' includes a CASC.

Under Gift Aid, a charity may claim a tax refund when it receives a donation payment from a taxpayer who is an individual. 25p will be refunded for every £1 donated using Gift Aid.

  • The individual donor must have paid sufficient Income Tax or Capital Gains Tax in order to cover the grossed-up amount of the donation made, otherwise, they will have to repay HMRC the tax refunded to the charity.
  • The relief is set out in Chapter 2 Part 8 ITA 2007.
  • Gift Aid relief does not apply to donations made by companies.

How Gift Aid works

Tax relief for the charity

  • A donation made under Gift Aid is treated as if it has been received by the charity net of basic rate tax.
  • The charity is then able to reclaim the basic rate tax credit.

For example

If an individual taxpayer donates £100, the charity can reclaim an additional £25 (£100 x 20/80) from HMRC. 

Tax relief for the donor

  • A donor who is a basic rate taxpayer will receive no further tax relief as a result of making a donation.
  • A donor who is a higher and/or additional rate taxpayer will be able to claim tax relief, via their tax return or their tax code, on the difference between the higher/additional rate tax and the basic rate on the grossed-up donation.

For example

An individual taxpayer donates £100 and the charity can reclaim an additional £25, giving a grossed-up donation of £125.

Where the taxpayer is a 40% taxpayer, £25 (40%-20% x £125) can be reclaimed, giving a net donation cost of £75.

Where the taxpayer is a 45% taxpayer, £31.25 (45%-20% x £125) can be reclaimed giving a net donation of £68.75.

What form of donation qualifies for Gift Aid?

  • Gift Aid applies to qualifying money donation payments, made by individuals who have made a Gift Aid declaration.
  • Providing certain qualifying conditions are met, payments for subscriptions, memberships or sponsorship may also be Gift Aided.
  • Gift Aid is restricted where the donor receives a valuable benefit as a consequence of making a donation. The acceptable benefit limits are set out in the Income Tax Act 2007.
  • Loan repayments and refund waivers may qualify under certain circumstances.

Getting started

To operate Gift Aid, a charity is required to:

  • Be properly constituted and registered with its appropriate supervisory body.
  • Apply to HMRC to obtain a registration number and claim its tax repayments on gift-aided donations.

To claim a tax repayment a charity is required to:

  • Ensure that donations are supported by Gift Aid declarations.
  • Maintain sufficient records for audit trail.
  • Claim using HMRC’s online service or use bespoke software or, in cases where online filing is impossible, file on a paper form ChR1.
  • See Compliance tab.

Gift Aid Small Donations Scheme (GASDS)

The Small Charities Donations Act 2012 allows charities to claim a new Gift Aid style tax refund on up to £8,000 per year of small donations received from individuals where the donation is not subject to a Gift Aid declaration. 

Small donations are of a value of up to £30 and are donated either in cash or by contactless card.

Charities with two or more community buildings can choose whether to claim on a UK-wide basis, where the £8,000 limit applies to all UK donations or on a community-building basis. This provision does not apply to CASCs.

If the charity claims on a community building basis, they can claim up to £8,000 of small cash donations made in the same Local Authority Area for each community building.

Key areas of difficulty for charities and their advisers

The Gift Aid legislation contains a series of complicated rules in respect of associated benefits. These are explained in more detail in the Overview tab.

The GASDS rules contain some special rules for applying the cap for connected charities and charitable activities run from Community Buildings, these are discussed in the GASDS section.

HMRC provides some detailed guidance on dealing with specific forms of donations in different sectors. These are discussed in more detail in the Special Cases section.

Non-Gift Aid: other types of gift

  • Shares, securities or real properties to charities (Part 8 Chapter 3 ITA 2007).
  • Trading stock (S.108 -110) ITTOIA 2005.
  • Payroll giving (Part 12 ITEPA 2003).

Companies and Gift Aid

  • Charitable companies can reclaim Gift Aid on donation payments made by individuals.
  • Donations made by companies to a registered charity or CASC are not within Gift Aid relief. However, a company may receive Corporation Tax relief on the charitable donations it makes as a deduction from its profits.

What's new? 

One-to-many letters

  • In May 2023, HMRC commenced a one-to-many letter campaign focusing on Gift Aid repayment claims by charities. 
  • The educational letters issued aim to assist charities in ensuring their Gift Aid claims on aggregated donations are right, by reminding them of the requirements. 

See Gift Aid one-to-many letter

Consultation: charities tax compliance

  • In April 2023, HM Revenue and Customs launched a new consultation ‘Charities tax compliance’ which explores possible changes allowing HMRC to tackle charities that obtain relief in ways that are not intended. 
  • This explores issues such as:
    • The rules surrounding tainted donations. 
    • Charities failing to meet filing obligations and whether withholding Gift Aid repayments may be an appropriate response. 
  • The consultation runs from 27 April to 20 July 2023. 

See Charities tax compliance consultation

On 27 April 2023, it was also announced that HMRC will continue to engage with the charities sector to improve the way that Gift Aid works by using digital technology to minimise administrative burdens. HMRC are currently looking at how the Gift Aid service can be improved for everyone who uses it.

Finance (No2) Act 2023 provides that from 15 March 2023

  • There is a restriction on charitable tax reliefs so that they only apply to UK charities and Community Amateur Sports Clubs (CASCs). 
  • EU and EEA charities registered with HMRC as of 15 March 2023 which HMRC have previously accepted as qualifying for reliefs and exemptions will have a transitional period until April 2024. 
  • The taxes affected are Income Tax, Capital Gains Tax, Corporation Tax, Inheritance Tax, Stamp Duty, Stamp Duty Land Tax, Stamp Duty Reserve Tax, Annual Tax on Enveloped Dwellings and Diverted Profits Tax.

With retrospective effect: 

  • Finance Act 2022 includes amendments to the Discovery provisions to ensure that HMRC can use its powers of discovery to recover certain tax charges, including Gift Aid donation-related charges as well as the High-Income Child Benefit Charge and some Pension charges. 

See Discovery Assessments: Finance Act 2022 changes