Tax Benefits of Charitable Giving
Did you know that charitable donations from higher rate tax payers and businesses are entitled to tax relief?
As the January tax return deadline approaches and another financial year closing not far after, here at Kent Community Foundation we wanted to remind individuals and businesses of the tax benefits available on charitable donations:
Gift Aid enables charities you support to claim extra money on your donation without it costing you a penny more. To make a Gift Aid donation, you must be a UK taxpayer. Your donation is treated as if basic rate income tax had been deducted: charities can therefore reclaim that tax from HM Revenue & Customs (HMRC). For example, on your donation of £10,000, we can claim £2,500 in Gift Aid, meaning your gift total will be £12,500.
Tax relief for higher rate taxpayers
If you pay tax at the higher rate, you can claim back the difference between the higher rates of tax (40% or 45%) and the basic rate (20%) on the total value of the donation.
- If you pay the 40% rate, a donation of £10,000 allows you to recover £2,500, so the donation costs you only £7,500 net, but Kent Community Foundation, with £2,500 gift aid, receives £12,500.
- If you pay the 45% rate, a donation of £10,000 allows you to recover £3,125, so the donation costs you only £6,875 net, but Kent Community Foundation, with £2,500 gift aid, receives £12,500.
Please make sure before making a gift aid payment in any year that you have sufficient taxable income to cover the donation. If you do not then HMRC may seek to recover the tax from you. If in doubt please speak to a professional adviser.
Donations made by local businesses may also be offset against Corporation Tax by deducting the value of your donations from the total business profits before paying tax.
With the voluntary sector under ever increasing pressure, we would like to encourage all advisers, individuals, and businesses to consider charitable giving as part of their end of year financial planning.