Gift Aid News 2014/15

Gift Aid and Personal Allowances

The accelerated rise in the income tax personal allowance over the last couple of years may affect some Gift Aid donors. The personal allowance rose to £10,600 in 2015/16 for anyone born after 5 April 1948. The 0% savings band was also introduced.

An estimated quarter of a million people were taken out of income tax entirely by this change. Anyone who is a non-taxpayer as a result of the increased personal allowance (or for any other reason) should cancel any enduring donations that they make under Gift Aid. They could be obliged by HMRC to repay any income tax claimed by a charity on their donation.

The Chartered Institute of Taxation (CIOT) is also encouraging charities to alert donors to the potential risk. 

Graham Batty, Chairman of CIOT’s Charity Tax Working Group, commented:

“Millions of taxpayers will be able to keep more of their income from next week. Those being taken out of income tax entirely by the Government’s changes will no doubt be particularly delighted. However, if they have signed enduring Gift Aid declarations they will need to cancel them. If they do not they may get a nasty surprise when HMRC present them with a bill for the tax liability they have inadvertently run up on Gift Aid donations.

“There is a responsibility on charities too. Charities and community amateur sports clubs ought tomake it clear regularly to anyone who has made an enduring declaration that if they make a donation for which they will not have paid enough tax to cover the amount to be reclaimed, they should withdraw their declaration so that they do not have to account for the tax on subsequent donations. In practice HMRC have sometimes been known to ask charities to make up the shortfall in a situation where a donor’s tax liability falls short of the tax attributable to his Gift Aid donations, so it is very much in the charity’s interest to do this.³”

While potential Gift Aid liability is something to be aware of every year when the personal allowance is increased, the issue will be especially acute in April 2015, when the Government make the first £5,000 of savings income tax free, taking even more people – many of them pensioners – out of income tax.

Robin Williamson, Technical Director of the CIOT’s Low Incomes Tax Reform Group, commented:

“Savers will no doubt be delighted at the prospect of keeping £5,000 tax-free. The 0% band, when added to tax-free personal allowances, means that many savers in 2015/16 will not be liable for tax on any interest they receive if their total taxable income is less than £15,500⁴. However there could be a sting-in-the-tail if they are making donations under Gift Aid.

“For example, a pensioner who will (from April 2015) pay 0% tax on their savings income, may donate £80 a year to their favourite charity. If they have made an enduring Gift Aid declaration the charity will assume the donation has come from someone paying the usual 20% income tax and claim this back from the Revenue under Gift Aid, which in this case would bring the total gross donation up to £100. However, if 0% tax has been paid on the money donated as ‘Gift Aid’ the donor might be faced with a bill for the difference in income tax to be paid back to HMRC – in this case £20. If this happens, the donor may want to discuss the position with the charity with a view to cancelling their gift aid declaration, and reducing their donation so that they are not out of pocket.

“Hopefully people will continue giving generously to charity, while avoiding any nasty shocks. That is in the interests of charities, donors and the tax authorities alike.”

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