How can your charity get the most out of Gift Aid?

Gift Aid is a term that is circulated freely especially within charity circles, but are those charities actually getting optimum benefit from its maximum potential? Research shows that most not-for-profits are not getting the most out of the scheme.

Let’s take the example of a humble charity shop – endeavouring to raise as much income as possible for its given cause. Could there be a way to boost their overall sales, potentially earning more without really doing any additional work? Thankfully there is one extremely simple way to make every sale count, earning you as much as 20% more – quite an increase don’t you think? Our quick guide will show you how your organisation could get the most out of the system – without massively impacting on your time or operations.

Tax purposes dictate that Gift Aid can only be claimed by recognised charities or community amateur sports clubs (CASC). The current level of Gift Aid stands at 25p for every £1 an individual donates – however upper thresholds do apply.

Now charities can earn even more…

OK, we’ve established the fact that donations to charities could potentially earn an extra 20% income if Gift Aid is used properly. However, there are still hundreds (if not thousands) of charities in the UK that are still not properly utilising the scheme – something which could massively affect the fundraising efforts of not-for-profits of any size.

It is estimated that for every £1 claimed through Gift Aid, 70 pence goes unclaimed – either due to poor accounting or lack of awareness of the scheme. For instant, many people incorrectly believe that Gift Aid can only be claimed on items donated to charity shops – however, as detailed below, there are myriad things that charities can claim money back on.

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Estimated annual income for charities through Gift Aid
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Estimated annual amount of Gift Aid that goes unclaimed

How it works – in 3 easy steps

Get a Gift Aid declaration form

Although Gift Aid is a useful tool, the consent of the person donating to the charity must always be given before it can be considered for a claim.

An easy way to do this is to explain to those donating items that (if it is also their wish) you would like to claim Gift Aid on their donation. A form must then be completed to indicate the donor’s intention – an example of which can be downloaded from the gov.uk site here.

Owners have the right to donate part, all or none of the Gift Aid amount – Gift Aid is typically calculated after any commissions, including VAT, have been deducted.

As mentioned below, Gift Aid can be claimed on monetary donations of less than £20 without needing the donor’s written agreement – but it is still recommended that it is sought. Also, Gift Aid can only be claimed if the donor has paid the appropriate amount in tax and national insurance contributions – but it is up to the donor to make sure that this is the case (as it is for most people).

Keep records

Gift Aid claims can only be made with accurate records. Therefore, every transaction that you wish to claim on needs to be detailed in a very precise way. For charities, this means keeping track of the following:

  • The total amount of money earned through Gift Aid donations
  • The date that the donation was made
  • The date that the funds were paid into the charity’s bank account

If the donation was for goods to be sold in a charity shop, you will also need the following:

  • The written confirmation that shows each donor’s Gift Aid declaration (including date, signature and contact details)
  • Documentation that shows that each individual donor has been notified about the sale proceeds, where necessary.
  • Any accounting that proves that the items sold belonged to an individual, where necessary.

File your claim

Before contacting the HMRC, it is imperative to notify product donors (in writing) of the net sale proceeds – if it was goods that they donated. All donors must be given 21 days in which to respond to any such correspondence before you file your claim.

Most small charities will be able to claim Gift Aid online using this link via Charities Online. This must be done using one of the following methods:

For claims of over 1,000 donations you must use one of the eligible pieces of software, and spreadsheets cannot be used.

Alternatively, claims can also be applied for by post. Form ChR1 is required for this, which can be obtained from the charities helpline using this link. However, this is a relatively cumbersome and difficult process when compared to the online methods.

Any claim for Gift Aid needs to be made within 4 years of the end of the financial period the donation was received in. This is normally classed as the financial year (which runs April – April).

Although there are a lot of Gift Aid claims that go unclaimed, this is at least partially down to the fact that there are relatively strict rules over what can and cannot be included in the Gift Aid scheme.

Included in Gift Aid

As well as items donated to charity shops, there are a whole range of different things that can have Gift Aid claimed against them – but it is important to remember that each of these require the donors consent.

new-green-tickSponsored challenges (such as marathons etc)new-green-tickCharity membership fees and Professional organisation membership feesnew-green-tickDonated goods (such as things given to charity shops – this is believed to be the most common form of Gift Aid)
new-green-tickChurch collections (such as a pan handed around during Sunday service)new-green-tickDonations made to schoolsnew-green-tickFunds raised at charity events (i.e. fundraising events, such as a rubber duck race)
new-green-tickMoney paid to enter charity proper (i.e. National Trust grounds, for walking tours and other property)new-green-tickExpenses paid to volunteers (i.e. money paid by the charity for train tickets, when that money is donated back to charity)new-green-tickFunds raised at charity auctions

In addition, small donations to charity below £20 can have Gift Aid claimed against them – and this can usually be done without needing the donors written authorisation.

Exempt from Gift Aid

Even more stringent than the things that can be included in Gift Aid are the matters that are strictly exempt. Although there are a few slightly grey areas, the following can not be considered for inclusion in the scheme:

crosserPayments for goods/services (i.e. things bought from the charity by the public)crosserMoney donated to charity by a private companycrosserAny donations made via ‘charity vouchers’ or ‘charity cheques’
crosserAny money earned via a ‘minimum donation’ where there is no option about paymentcrosserGifts that are dependent upon the gift being repaidcrosserGifts that come with other conditions (i.e. purchasing a good/service from a company)
crosserGifts made on behalf of a third party (i.e. charity memberships bought by someone for someone else)crosserDonations made for goods/services (i.e. entry to a concert or an entry fee for a sponsored challenge)crosserDonations received before the organisation was a registered CASC or Charity

As the above shows, there are numerous ways in which the scheme can be difficult – especially for smaller charities who may not have the requisite knowledge at their disposal to make sure that they are doing things legally. However, there is help out there for people who need advice on the implementation of Gift Aid in their charity.

Find out more…

The implementation of Gift Aid can be actioned in a variety of ways, the process within this article being just one option. If you would like more details regarding how to make the most of Gift Aid please call our financial partners at Pareto on 08436 367 773