As the Self Assessment deadline approaches, new research from the Charities Aid Foundation (CAF) finds that charities are missing out because higher and additional rate taxpayers are not aware of the tax relief they could receive on their donations.
Higher and additional rate taxpayers are more likely to donate to or sponsor for charity than basic rate or non-taxpayers. But they are missing out by not claiming tax relief on their donations when they complete a tax return. Two in five (39%) of this group said they did not know it was possible and more than a fifth (22%) are aware but say they have never done it.
More than 12 million people who are self-employed or earn over £100,000 are due to complete a Self Assessment tax return before the deadline on 31 January 2025. As well as claiming Gift Aid for the charity to receive, higher and additional rate taxpayers who donated to charity in the previous year can claim for personal tax relief in their tax return. The difference between their tax rate and the basic rate of tax on the value of their donations can either be claimed as personal tax relief or donated to charity.
This means that when a 40% rate taxpayer donates £100 to charity with a Gift Aid declaration, an extra £25 effectively goes to the charity, and they can bring down their tax bill by £25 or choose to donate that to charity as well. Individuals can also claim for relief for four years’ worth of previous donations through tax ‘overpayment relief’ with HMRC.
However, CAF’s research found that only 17% of higher and additional rate taxpayers say they always claim back money on their taxes for their donations. Of those who have previously claimed relief, the majority did so to reduce their tax liability (57%), with more than a third (35%) doing so in order to donate the extra money to charity. A fifth (21%) say they were recommended to by their accountant or financial adviser.
Those who are missing out include a third (35%) of people who say they don’t claim because they don’t keep records of their donations, and a fifth (22%) who feel it’s too much work. More than a quarter (27%) said they don’t complete a tax return. Just over one in 10 (12%) had the misconception that it stops the charity from claiming money.
HMRC forecast that higher and additional rate tax relief on individuals’ Gift Aided donations is likely to be worth £690 million for the tax year to April 2024.2
Mark Greer, Managing Director at the Charities Aid Foundation said:
“Charities miss out on millions every year from generous donors who don’t know about or forget to tick the Gift Aid box. As demand for charity services continues to increase, it’s vital that taxpayers make a Gift Aid declaration to charities they support.
“Incentives for charitable giving are crucial to encourage and increase support for charities from those who are in a financial position to donate. Talking about tax and charitable giving can be a bit uncomfortable for some, but we need to increase awareness and understanding about these valuable incentives. For those who are not aware, consider how extra funds could boost the income of the charities you care about in the future.”
How to maximise your charitable giving as the Self Assessment deadline approaches:
- Declare your donation so the charity can claim Gift Aid
Any donor giving money to a charity can enhance their donation by signing a Gift Aid declaration if they pay enough income tax. The charity can then reclaim the basic rate tax already paid on that donation. Higher and additional rate taxpayers who fill in a Self Assessment form can also claim back the difference between their tax rate and the basic rate of tax on the value of their donations as personal tax relief.
2. Claim Gift Aid sooner
Self Assessment tax returns normally only include items from the previous tax year. But for Gift Aid, you can also claim tax relief on donations made in the current tax year (up to the date the return is sent) either to get the tax relief sooner or if you will not be paying higher rate tax in the current year but have paid it in the previous year.
3. Claim tax relief for previous years
If you forget to claim tax relief, or were unaware that you could, then you have four years to submit a claim for tax ‘overpayment relief’ to HMRC. That’s four years after the end of the tax year to which your claim relates.
4. Declare if you gave shares to charity
This is a relatively little-known way to give to charity but it is also very tax efficient. You can give shares directly to charity as long as they are listed on a recognised stock exchange. Donors will get full tax relief on any capital gains tax. You can also claim income tax relief on the fair market value of shares.
5. Let charities know if your circumstances change
The amount of tax you pay needs to be at least equal to the value of Gift Aid the charity will claim on your donations. If circumstances change and you no longer pay enough tax, it is important to tell all the charities you support. If you don’t tell them and they continue claiming Gift Aid, you may need to pay any difference back to HMRC.