Giving to charity
Other tax issues
This section is about the two main ways that individuals can get tax relief for cash donations made to charities – relief available under payroll deduction schemes (Give As you Earn or ‘payroll giving’) and Gift Aid.
What is payroll giving?
If you pay tax through Pay As You Earn (PAYE), 'payroll giving' is a simple way of making regular gifts to charity. It allows you to authorise your employer or pension payer to make the donation from your pay or pension.
Your employer or pension payer takes off the payments before working out and deducting your tax, so you get relief on your donation immediately at your highest rate of tax. The donations are then passed to the charity on your behalf through HM Revenue & Customs (HMRC) approved charity agencies with which the employer or pension payer has made an arrangement.
For example, if you pay tax at the basic rate of 20%, and authorise a monthly donation of £10, you save £2 tax (20% of £10). The actual cost of the donation to you is only £8. You will however, pay National Insurance contributions (NIC) as normal on the £10.
If you do not earn enough money to pay tax then you will not get tax relief on your donation.
Payroll giving does not affect any other donations you might want to make to charity. You can, for example, make other donations using Gift Aid if you wish.
Who can use payroll giving?
You can use payroll giving as long as both of the following apply:
- you are an employee or you get a company or personal pension and your employer or pension payer deducts tax through the PAYE system;
- your employer or pension payer operates a payroll giving scheme. You will have to check this with them.
You do not have to tell your employer or pension payer which charities you support. The payroll giving agency running the scheme provides you with a charity nomination form, which you can complete and return directly to the agency to tell them where they should send your donations.
Once a gift has been deducted from your pay or pension no refund is possible. Some charity agencies may charge a small fee, which is deducted from your donation, to cover administrative costs.
Do I have to tell HMRC about my payroll giving?
You do not need to put details of gifts made through payroll giving on your Self Assessment tax return if you complete one or tell HMRC about the donations in any other way at all.
This is because exactly the correct amount of tax relief will have been given on the donation and there is nothing else to do.
You should, however, keep records for your own reference.
Gift Aid is another tax efficient way of making gifts or donations to a charity. For a brief overview of the Gift Aid system check out our factsheet.
Relief is available on donations you make to UK registered charities. Relief is also available if you make donations to charities registered in other EU member states, Norway and Iceland.
Gift Aid also applies to gifts made to Community Amateur Sports Clubs (CASC). The relief only applies to gifts made to the CASC and not to any other payments such as membership subscriptions.
When you make a donation, you use money that has already been taxed. If, like most taxpayers in the UK, you are a 20% taxpayer, you will have made your donation out of income that has already suffered 20% tax. The charity will take your donation and then reclaim the 20% tax that you originally paid, from HMRC. If you are a 20% taxpayer, there is no further adjustment that needs to be made.
You earn £12.50 and £2.50 is deducted from this at the basic rate of 20%. This leaves you with £10. If you give this £10 to a charity using Gift Aid, the £2.50 tax you paid on it will be paid to the charity by HMRC, so the total received by the charity is £12.50.
If you pay tax at the rate of 40% or above, you can claim the difference, between the tax you paid and the 20% tax claimed by the charity, back from HMRC yourself.
You donate £100 to charity – they claim 20% to make your donation £125. You pay 40% tax so you can personally claim the other £25 from HMRC.
If you normally complete a Self Assessment tax return, tell HMRC about your gifts to charity – and claim any tax relief – by completing the appropriate section on your tax return.
If you do not complete a tax return, you can give the details on form P810 Tax Review – this is not available online and is only available by contacting HMRC.
If you pay tax through PAYE, HMRC can give you any relief through your tax code – meaning any refund will be paid when your wages or pension is paid to you, generally by way of a lower tax deduction than you would otherwise have suffered.
If not, you may have to obtain a refund directly from HMRC.
It is therefore important to keep records of all your donations made under Gift Aid.
You should be aware that there are businesses that specifically target taxpayers who have tax relief to reclaim on their Gift Aid donations. Their service may be to write a letter to HMRC on your behalf telling them about your circumstances and donations – for a fee. However, more often than not, it is straightforward for a taxpayer to do this for themselves and fees are incurred unnecessarily.
How does Gift Aid work if I am a Scottish taxpayer?
Basically, for 2018/19, Scotland will have rates of tax of 19%, 20%, 21%, 41% and 46%.
Those paying 19% will be treated in the same way as 20% taxpayers – but may need to take extra care that they have paid enough tax to cover the Gift Aid claim.
Those paying 21%, 41% or 46% can claim extra relief in the same way as those in the rest of the UK.
I do not pay tax or pay only a little tax. Can I still make charity donations under Gift Aid?
In order to use Gift Aid you must make sure that you have paid enough income tax to HMRC in the tax year in which you make your donation – at least equal to the amount that the charity will reclaim. The charity will ask you to sign a Gift Aid declaration confirming that you pay sufficient tax.
If you have not paid sufficient tax but still make a Gift Aid donation by mistake, you may have to make up the difference in income tax to HMRC.
Remember: You do not necessarily have to be working to be paying tax. Apart from tax on income from a job or self-employment, the tax you have paid could include tax you have paid on your pension or investments, such as rental income. Other taxes such as VAT and council tax do not qualify.
To work out if you have paid enough tax to cover your donations, divide the donation value by four and compare this figure to the amount of tax that you have paid for the year. Remember to add all the Gift Aid donations you have made in the tax year and that any tax at source is only an estimate and so may not be the final amount due to HMRC – you may be due a refund or have a balance to pay. See How do I work out my tax? for more information.
You should note that in 2018/19, due to the Personal Savings Allowance and the dividend allowance, most people won’t need to pay tax on their savings interest or dividends. Both dividends and bank interest are paid gross (banks no longer automatically deduct tax from interest before it is paid, dividends no longer carry a 10% tax credit).
You may have been used to relying on the tax paid on your savings interest and the tax credit on your dividends to cover your Gift Aid donations.
If you no longer pay tax on them due to the new rules, but continue to donate to charity under a Gift Aid declaration, the charity will still assume the donation has come from someone paying tax and claim an amount back from HMRC. You might then be faced with a bill from HMRC for the amount the charity has claimed.
You may wish to cancel your Gift Aid declaration. You can still donate to charity, but the charity cannot claim Gift Aid relief from HMRC. You should also bear this in mind when visiting attractions which invite you to Gift Aid your ticket entry.
Look at the example Mr Green to see how this works.
You can also see from the Mr Green example that in previous years, the 10% dividend tax credit may have meant that you paid enough tax over the year to use Gift Aid, even if you were otherwise a non-taxpayer.
You can read a press release we have issued warning people who give under Gift Aid to check their income tax position here. You may also be interested in this press release, in which we call on HMRC to stop pursuing non-tax paying people for any tax due on donations they may have made by mistake under Gift Aid.
Will my Gift Aid donations affect my taxes in any other ways?
Yes – Gift Aid donations will be taken into account when determining the amount of any Personal Savings Allowance you are entitled to. This interaction is described in more detail on the GOV.UK website.
Gift Aid donations may also be taken into account for the purposes of looking at the £100,000 personal allowance abatement and the High Income Child Benefit Charge, however as this guide is not aimed at those on high incomes we have not gone into any further detail.
There used to be an interaction with age-related personal allowances for pensioners to be aware of, however since 2016/17 age-related personal allowances no longer exist (the personal allowance in 2018/19 is £11,850 regardless of age).
Gift Aid donations are taken into account when calculating income for Married Couple’s Allowance so giving to charity could result in you getting more Married Couple’s Allowance.
Can I carry back Gift Aid donations?
Gift Aid donations can be carried back and treated as if they were made in the previous tax year. This can be helpful where you were a higher rate taxpayer in the previous tax year but are now a basic rate taxpayer.
Payments made on or after 6 April 2018 can only be included in the return for the year ended 5 April 2018 if your return is sent to reach HMRC before the appropriate filing date. You must therefore make any claim to carry back a Gift Aid donation in your original tax return for the year ended 5 April 2018. HMRC cannot accept a first claim or a higher claim in an amended tax return for the year ended 5 April 2018.
See our example Mr Purple for an illustration of how this works.
Mr Green has donated £5 a month to the RSPCA for many years from his dividend income of £2,000. This monthly donation equals £60 a year. As he has signed a Gift Aid declaration, the charity reclaims £15 a year from HMRC.
The changes in the dividend rules mean that in 2018/19 there is no tax credit/no tax to pay on his dividend income of £2,000, however as the Gift Aid declaration is still in place, the charity still reclaims £15 from HMRC.
Mr Green owes the shortfall of £15 to HMRC for 2018/19.
If Mr Green had received the dividend income in 2015/16 say, (i.e. before the new dividend rules came in) his dividend income of £2,000 would have carried a 10% tax credit totalling £200. This would have covered the £15 tax relief claimed by the charity.
Mr Purple was a higher rate taxpayer in 2017/18. In 2018/19 he decides to cut back his work to spend more time with his grandchildren, so will only be a basic rate taxpayer.
On 15 June 2018 (in the 2018/19 tax year), Mr Purple gives £100 to Unicef. They will claim 20% from the Government to make his donation £125.
Mr Purple can put the £100 donation in his tax return for 2017/18 which is due by 31 January 2019. This will trigger a refund of £25 (the difference between the 20% tax relief given by the Government and the 40% he is due because he was a 40% taxpayer in 2017/18).
If Mr Purple submits his tax return for 2017/18 by the 31 January 2019 deadline, but only remembers about the 15 June 2018 payment to Unicef after the deadline, he cannot submit an amended return to trigger the refund. Similarly, no carry back claims can be made in respect of any other donations made in the 2018/19 tax year but after 31 January 2019.
Where can I find more information on giving to charity?
There is more information on payroll giving and Gift Aid on GOV.UK.
You may also find HMRC’s helpsheet 342 ‘Charitable giving’ helpful.