Charity Donations Tax Deduction
By David Collier CA CTA
Here's what you need to know about the charity donations tax deduction. The Inland Revenue has issued a reminder that the amount received by charities when a donation is made to them can be increased if the tax incentives of Gift Aid or Payroll Giving are used.
They have also issued details of incentives for small and medium sized businesses to set up Payroll Giving schemes for their employees.
Gift Aid for Individuals
When making a gift to a charity, the gift should be made under a Gift Aid declaration. This will enable the charity to reclaim an amount equivalent to the basic rate tax paid on the amount donated. This means that for every £78 given to the charity, the charity will be able to claim an additional £22 from the Inland Revenue, increasing its income by 28%.
When an employer operates a payroll giving scheme, an individual can give a regular amount to help charities and get tax relief for doing so. Under this method, a gift of £10 from an individual will only cost a basic rate taxpayer £7.80 and would cost a higher rate taxpayer only £6. Many employers' schemes can also accept one off donations.
Small and medium sized businesses that set up a Payroll Giving scheme will receive a grant of up to £500. In addition, the first £10 of each employee's monthly donations will be matched £ for £ for a period of six months which would mean an extra £60 per employee going to the chosen charity. The grants and the additional monthly amounts will be funded by the Home Office.
Grants will be paid to organisations with less than 500 employees which set up a Payroll Giving scheme before the end of December 2006. The amount of the grant depends on the number of employees as follows:-
- 1 - 199 employees £300
- 200 - 249 employees £400
- 250 - 499 employees £500
Gifts by Companies
Companies which donate money to charity will obtain a deduction for this gift from taxable profits. There is no need to complete a Gift Aid declaration.
David Collier CA CTA is tax partner at Chiene & Tait. Founded in 1885, Chiene & Tait is one of Scotland's largest and most respected firms of chartered accountants. David also provides answers for Taxcafe's Question & Answer service.
