Originally started in 1990, albeit with very different rules, Gift-Aid is a great opportunity for charities to increase their fundraising potential by up to 25%; all that it takes is an eligible donation and express consent from the donor. In this short article we’ll be looking at some of the common pitfalls and top tips to making the most of this initiative.
It must be a donation!
The rules for Gift-Aid are very specific in terms of what constitutes a donation, but in essence, a donation is a voluntary contribution given freely which is surplus to the value of benefits received. For example, a charity dinner charging £50 per head would be ineligible for gift-aid. You could, however claim gift-aid on a £20 suggested donation above a £30 ticket, provided that the £20 was not required, and did not entitle the donor to more than £5 of additional benefits.
What’s the deal with benefits?
Benefits are small gifts given by the charity in thanks to a donor, and these too have specific rules where Gift-Aid is concerned. For donations up to £100, these cannot exceed 25% of the donation. Up to £1000, they cannot exceed £25, and after £1000, they can’t exceed 5% of the donation, up to a maximum of £2,500.
By this rule, it is generally fine to give certificates detailing what a donation will be spent on, or a box of chocolates for a larger donation where RRP is less than 25% of the donation. The benefit rule excludes things such as school trips from gift-aid eligibility, where suggested donations are spent immediately on benefits such as admission and transport.
How do charity shops claim then?
In the charity shop scenario, the donation is in the form of items gifted, yet this isn’t eligible for Gift-Aid until the items are monetised. Once sold, charities must confirm with the benefactor that they are happy to donate all or a specific amount of the proceeds before Gift-Aid can be claimed on the remainder. After 3 weeks, if no response is received, it can be assumed that the donation is the full value of the goods sold.
What about collection boxes?
Collection boxes are a little different, not least because there is no formal declaration given with each donation. In these situations, donations are eligible for the Small Donations Scheme.
The Small Donations Scheme allows up to £2000 of donations not exceeding £20 each to be eligible for 25% gift-aid. For charities which operate a community building such as religious institutions, this figure increases to £8000, allowing a gift-aid claim of up to £2000! Donations claimed through the small donations scheme cannot exceed 10 x of donations which have been declared for.
How are declared donations different?
Declared donations must be from a UK taxpayer, who explicitly states they are happy for the charity to claim the 25% Gift-Aid from the tax they have paid that year. The evidence of these declarations must be kept on record by the charity to support a Gift-Aid claim.
Crucially, the declaration must be on an opt-in basis, rather than opt-out; signifying that the beneficiary has willfully signalled their desire to Gift-Aid their donation. This rule also means that donations cannot be Gift-Aided on behalf of another, such as when donations are pooled from multiple people.
In addition to collecting the additional 25% from each donation for the charity, if the donor is a higher rate tax payer they can also claim back additional tax relief for themselves. Systems such as Merlin 8 can be used to collate statements for such donors to easily include in their tax return.
How does Gift-Aid apply to admissions?
Entry fees are ineligible for Gift-Aid, as these technically constitute a payment for a service. There are however, ways to qualify admission revenue as donations. Adding an optional donation of at least 10% on top of an admission cost can entitle the visitor to gift-aid the entire amount.
For example, if admission to a museum cost £8, but Mr Smith decided to add a 10% donation, he would then pay £8.80, and the museum would be able to claim an additional 25% Gift-Aid on the whole value with Mr Smith’s express consent, totaling £11.
The other method is to allow access for at least one year with an admission ticket. In this case, the entire initial payment can be classed as a donation. Entry must then be granted either at a reduced rate for the whole period, or for free with the exception of up to five days.
What about Memberships?
Memberships can also be used by charitable venues to claim gift-aid, but the memberships must meet certain criteria. As with admissions, the payment cannot be in exchange for services. To qualify, look into other ways to reward your members such as with newsletters and engagement in fundraising and governance activities.
- Gift Aid must be opt-in, and declarations indicate that the benefactor is happy for the charity to claim 25% from their income tax payments for the current year.
- The Small Donations Scheme can be used to process a limited number of claims for donations under £20.
- For gift-aid to be claimed, the donation must be a voluntary contribution, which is not compensated for by way of goods or services.