HMRC have updated their guidance concerning a charity's obligation to make donors aware of their liability for any shortfall should they have paid insufficient tax to cover Gift Aid claims.
Donors must be charged an amount of Income Tax and/or Capital Gains Tax for the tax year in which Gift Aid donations are made at least equal to the Income Tax treated as deducted from the total of all their Gift Aid donations made in that tax year. Donors who haven’t been charged sufficient tax to cover the Income Tax deducted from their Gift Aid donations will owe the amount of the shortfall in Income Tax to HMRC.
During the year ended 5 April 2016, a donor (Mr Green) wins a prize of £10,000 in a competition. He decides to share his good fortune with two charities and makes Gift Aid donations of £800 to Charity A and £1,600 to Charity B.
Charity A claims Gift Aid tax relief of £200 and Charity B £400. Therefore the total Gift Aid tax claimed by charities as a result of Gift Aid donations by Mr Green in the tax year is £600. However, Mr Green only pays Income Tax of £250 during the tax year and so he owes the shortfall in tax of £350 (total Gift Aid tax of £600 less Income Tax paid of £250) to HMRC.
What gift aid declarations must include:
In order for a Gift Aid declaration to be valid, the charity must give and be able to demonstrate it has given an adequate explanation to the donor of the personal tax implications associated with making a Gift Aid donation, including the responsibility to cover any shortfall. This explanation can be included on a Gift Aid declaration, although can also be made separately.
An appropriate declaration may be made in writing or orally. There is no set design for a declaration form or a verbal declaration, but it must include:
HMRC doesn’t produce an official form for Gift Aid declarations, so a charity can design its own. However, the HMRC website contains a model Gift Aid declaration and it is recommended that charities use the model adapted, as appropriate, to reflect the period of the intended Gift Aid donation(s).
HMRC’s example declaration for a single declaration can be found at: https://www.gov.uk/government/publications/charities-gift-aid-declaration-form-for-a-single-donation
More information and other related forms can be found at: https://www.gov.uk/guidance/gift-aid-declarations-claiming-tax-back-on-donations.
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