From 6 April 2016, charities will need to ensure that they are using the new model Gift Aid declaration published by HM Revenue & Customs last year.
How Gift Aid works
When a donor makes a donation to a charity, say £800, the charity can recover the amount of basic rate Income Tax (currently 20% so £200) which would have been deducted to provide the donor with the net income of £800 to donate, so the charity would receive £1,000 in total. The Income Tax recovered by the charity is known as a Gift Aid payment.
HMRC’s rules require charities to be registered to claim Gift Aid payments and donors to make a declaration, which is the instrument that gives the charity the authority to recover the tax paid on the net income donated.
If a donor has not paid sufficient Income Tax (this may be due to their taxable income being below the tax-free Personal Allowance threshold) and makes a Gift Aid declaration, there is an issue whereby the charity would claim tax from HMRC which has not been paid. In this instance, it is the donor’s responsibility to top up their payment to make up the amount claimed by charity; effectively, the donor is landed with an Income Tax bill even though his or her income may not be at a level where they would ordinarily pay tax.
The main change to the Gift Aid declaration template is to the confirmation that the donor understands they need to have paid enough Income Tax personally for the charity to recover from the receipt of the donation.
The wording used to read:
“I confirm I have paid or will pay an amount of Income Tax and/or Capital Gains Tax for each tax year (6 April to 5 April) that is at least equal to the amount of tax that all the charities or Community Amateur Sports Clubs (CASCs) that I donate to will reclaim on my gifts for that tax year. I understand that other taxes such as VAT and Council Tax do not qualify. I understand the charity will reclaim 25p of tax on every £1 that I give.”
This was considered too ‘wordy’ and confusing to donors. Also, the mention of VAT and Council Tax was irrelevant.
The new statement reads:
“I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax than the amount of Gift Aid claimed on all my donations in that tax year it is my responsibility to pay any difference.”
Whilst this reduction in the amount of text that the donor needs to read is a welcome simplification, there has been concern in the charity sector, that the new way in which the confirmation is worded may be off-putting to potential donors, as it emphasises their liability to pay Income Tax if they have not paid enough in the tax year in which the Gift Aid donation is made.
Another change is that the signature line has been removed from the template, as it is not necessary for a Gift Aid declaration to be signed.
What about old Gift Aid declarations?
The new model declarations were published on 21 October 2015 for use by 6 April 2016 and it is recommended that charities begin to use these at the earliest opportunity.
HMRC has confirmed that charities can continue to use up their old stocks of printed materials before having to use the new declaration format. However, this is on the proviso that they were ordered and printed before 21 October 2015.
For donations previously made using the old form which applies to all ‘previous, current and future donations’, it will not be necessary to arrange for the donors to make new declarations.
Where can I find a copy of the new Gift Aid declaration form?
Charities and Community Amateur Sports Clubs (CASCs) can find copies of the new forms for single donations at here.
For anyone raising donations through sponsorship, there is an updated template here.
Is it compulsory to use these standard forms?
No. These are only model templates which HMRC has produced to save charities’ time producing their own forms.
If a charity would like to administer declarations for Gift Aid payments in their own way, there is no set design for the form but it must include the following information:
Name of your charity or CASC
Donor’s home address
Whether the declaration covers past, present or future donations or just a single donation
Statement that the donor wants Gift Aid to apply (this could be a tick box on a written or online declaration)
Explanation that the donor needs to pay the same amount or more of UK Income Tax and/or Capital Gains Tax as all charities and CASCs will claim on the donor’s gifts in a tax year and that the donor is responsible to pay any difference
A donor can make a valid Gift Aid declaration verbally, if they are donating over the phone. HMRC recommends keeping a record of the audio recording. In any event, for verbal declarations, a letter with the above listed information must be sent to the donor, also informing them that they can cancel their declaration within 30 days.
What if a donor cancels their Gift Aid declaration?
A donor can cancel a Gift Aid declaration at any time. This may be due to the donor’s income no longer being at a level at which they pay Income Tax. A cancellation will not be retrospective, so it won’t affect previous donations, nor can a donor make a cancellation of a declaration for one-off donations.
Once a declaration has been cancelled, the charity will no longer be able to claim the tax on future donations from the donor.
All charities must keep records of cancellations of declarations and a note of the date on which they were cancelled.
How long should Gift Aid declarations be kept for?
Charities should keep records of any Gift Aid declarations for 6 years from the end of the accounting period in which they were made. For enduring donations, these should be kept permanently.