Gift aid and tax credits - a relief too far?

Published on 24 January 2005

UK taxpayers who are also tax credit claimants can claim gift aid relief and may thereby increase their tax credit entitlement. But, inexplicably, the Revenue are reluctant to provide the means whereby gift aided donations can easily be recognised in tax credit awards.

The tsunami disaster has brought gift aid issues to the fore to an unprecedented extent, and has caused what many consider to be deficiencies in the gift aid scheme to be closely examined. Following our recent article on how non-taxpaying donors unwittingly incur a tax liability if they mistakenly sign a gift aid declaration (follow the link below), the campaign to extend the scheme has gathered momentum.

Yet UK taxpayers who are entitled to use the scheme face a fresh difficulty if they also happen to be tax credit claimants. The law allows them to deduct their gross gift aided donations when computing their income for tax credits, so that their entitlement to credit is based upon their income net of their gifts.

However, there is nowhere on the tax credit claim form TC600 on which they can easily record any such donation. The accompanying notes tell you to deduct gross payments under gift aid when working out your income, and if you have made such donations to phone the helpline. But some who have enquired of the helpline have been told that there is no gift aid relief. In addition, the gift aid publicity item on the home page of the Revenue's website fails altogether to mention tax credits.

It seems almost as though the Revenue regard gift aid for tax credits as a relief too far. But why they should be so reluctant to tell people about it is a mystery.

We therefore advise tax credit claimants who are taxpayers and have made donations under gift aid:

  1. when reporting their income on the claim form, to deduct the gross amount of their gift aid donations as directed on page 30 of the notes accompanying form TC600;
  2. if they do phone the helpline, not to be put off if they are told that they cannot claim relief for gift aid.

Note: The gross amount of a gift aided donation is the actual donation plus the basic rate tax on it. Thus, a donation of £78 gives a gross total of £100, taking into account 22% basic rate tax. And similarly a donation of £100 gives a gross amount of £128 (22% of £128 being £28). The gross amount is worked out by dividing the net payment by 78 (100 less 22) then multiplying by 100.

(24-01-2005)

Contact Name: Robin Williamson (tel 0844 579 6700; fax 0844 579 6701)

Relevant Link: Non-taxpayers cannot use gift aid when giving to charity