Non-taxpayers cannot use gift aid when giving to charity

Published on 6 January 2005

Although much is being made in the press and media of the advantage of gift aid relief when giving to charities such as those helping the victims of the tsunami, many fail to mention that you should not sign a gift aid declaration if you are a non-taxpayer.

Under gift aid, a donor gives a slice of their income to a charity, and the charity reclaims from the Government the tax which the donor has paid on it. So for every £1 given, the charity can reclaim 28p (that being the basic rate tax of 22% on £1.28).

Under the law as presently drafted, a donor must have paid enough tax in the year to cover the amount of tax on the gift. It follows that if a donor has not paid any tax in the year, or not enough to equal the tax on the gift, they should not sign a gift aid declaration, because if the charity reclaims tax which has not been paid, the Inland Revenue may decide to recover that tax from the donor.

For many years, LITRG has tried, unsuccessfully, to persuade the Government to extend the scheme to non-taxpayers, who are no less generous in their giving than those on higher incomes – and quite possibly more so in relation to their disposable income. Indeed that was apparently the Chancellor’s original intention: he said, in the context of his policy called “Getting Britain Giving”, that the scheme would apply to “citizens”. It was only when the detailed provision was published that the restriction for gifts by non-taxpayers became apparent.

There are many reasons why a non-taxpayer might mistakenly use the gift aid scheme. The charity asking for their money might not have explained to them that they should not sign the declaration if they have not paid enough tax. Or they may simply have forgotten to revoke an old gift aid declaration in a year in which their income falls below taxable levels. And few are likely to appreciate the technicalities of the gift aid rules if they are not told.

It is galling when people whose income is too low to pay tax unwittingly incur a tax bill simply by being too generous to their chosen charity. But ministers have set their face against changing the system, because to do so would apparently involve a change in Government accounting procedures which would not be in accord with some detailed ruling by the Office of National Statistics. This ruling has not however been made public.

Nevertheless, we have been able to extract from ministers a vague assurance that, rather than pursue the hapless donor for the tax debt:

in many cases, the Inland Revenue will explain the situation first to the charity, which will then decide voluntarily to repay the amount of the tax reclaimed.

The fact that the public debate about gift aid in the last few days barely mentions the position of non-taxpayers means that many more generous givers now risk falling into this trap which the Government has set for them.

It also means that in this respect the very notable generosity of the public to the emergency appeals is not being matched by the Government.


Contact Name: Robin Williamson (Contact tel: 0844 579 6700, Fax: 0844 579 6701)