What are the tax consequences? 

Gift aid rules 

Gift aid is a special tax relief for UK income taxpayers, who confirm to the charity that they are making the donation under the Gift Aid regime.  

Many people make perfectly good donations without Gift aid e.g, pennies in the collection pot or anonymous donations. 

However, under Gift aid the charity can recover basic rate tax on your donation, making it worth more; so if you are an income taxpayer then do make your donations under gift aid. 

If you have insufficient income to pay income tax, then you should not be advising that the donation is being made under gift aid, or you may get a tax bill for the tax you are claiming you paid. 

Gift aid donations should be declared on your personal tax return. 

If you are a higher rate taxpayer, who pays more than 20% income tax, then you may be able to claim additional tax relief via your tax return.  If you were a higher rate tax payer last year but not this year, then you may still be eligible for the additional relief on this year’s donations, by claiming them on last year’s return, before the submission deadline. 

If you do not have a personal tax return, then additional tax relief may be claimed via your tax code or form P810. 

Company’s do not pay income tax so cannot make gift aid donations. 

Business rules 

You may want your business to make the donation.  Any business may donate to charity, a sole-trader, partnership or limited company.   

However, a sole trader or partnership may only get tax relief under gift-aid, not as a business expense.  

A limited company is not eligible for gift aid, so its donations may get tax relief by deduction from business profits, but only against current year’s profits if any. 

Donations with rewards, e.g. tickets to an event, may not be tax deductible if the value of the benefits is excessive. 

• For donations under £100, rewards must be less than 25% of the donation,   
• For donations between £101 and £1,000 the reward must be less than £25 
• For donations over £1,000 rewards must be less than 5% of the donation and under £2.500 

These rules apply to all benefits received by anyone connected to the company and their close relatives. 

If the reward is too large but of business benefit, then the donation may still qualify for tax relief but under an alternatively business expense heading e.g. sponsorship expenses. 

 

 

Donations 

The above rules do not just apply for cash donation but can apply for donations of second-hand clothes, personal items or equipment used in the business, also trading stock, stocks and shares in other businesses and land. 

Market value is used for non-cash donations. Charity shops will often agree to tell you what your donations sold for and hence the market value for your gift aid or tax relief claim.  

Donations are officially gifts to registered charities with no reward, but tax relief may still be available for charity auction purchases; the market value may be assessed in advance and then any excess paid is a donation by the purchase, and eligible for gift aid. 

Donations of post-tax profits are still dividends even if paid to charity, and have their own special rules on tax relief 

Donations, especially large one, may need to be proven, so keep records.