Dropping coins into boxes may make you feel good, and charities would never turn them away. But there is now a wide range of schemes that force the Inland Revenue to pump up your donations.
The latest of these, Gift Aid, designed to give relief on one- off donations, received a big boost in the last Budget, with the reduction in the minimum limit on gifts from pounds 600 to pounds 400. Gift Aid started operating in October 1990, and Inland Revenue figures show that by March this year charities had received pounds 260m from the scheme. Of this, pounds 195m was donations and pounds 65m tax relief.
Most people making donations through official schemes receive tax relief at the basic rate of 25 per cent, but higher- rate tax payers get it at 40 per cent. The charity receives the basic-rate tax you deduct when making the payment, so that if your annual gift was, say, pounds 600 a year net of tax deducted, then with the tax refund the charity would actually get another pounds 200, making a total of pounds 800. If you were liable to the 40 per cent rate of tax, you would get tax relief of 15 per cent in addition to the 25 per cent you had already deducted - so that your gross gift of pounds 800 would only cost you a net amount of pounds 480.
If you are employed and your employer operates the Payroll Giving Scheme, you can make gifts by a maximum deduction from your pay of pounds 600 a year. Each payday the employer will deduct your charity payment before applying PAYE, so that no tax will be paid on your gift, giving you immediate tax relief.
If you pay tax at the 25 per cent rate on your salary but have other income which attracts the 40 per cent rate, then your additional tax relief of 15 per cent will be given when making the higher-rate charge.
Alternatively, you may enter into a Deed of Covenant for charitable giving, which must be for a period of at least three years. Then you will be liable to pay to the charity the covenanted amount, less tax at the basic rate, each year for the term of the deed. You get basic- rate tax relief immediately, by paying over only the net amount. For example, on a covenanted amount of pounds 100 per year less 25 per cent, you pay pounds 75 net. The charity then gets back from the Inland Revenue the pounds 25 tax you deducted.
Under the Gift Aid Scheme, your pounds 400 will be deemed net of tax at 25 per cent, so that you have really made a gift of pounds 533.33 gross and deducted tax of pounds 133.33.
It is important for anyone making a gift to a charity under these schemes to understand that a non-tax payer, or someone paying only a small amount of tax in a year, may end up having to refund money to Inland Revenue. The donor must have a tax bill in the tax year of the donation which is at least equal to the tax treated as deducted from the charitable gift.
In particular this will affect married women who have no income from employment but may have investments bringing in income from which tax is deducted.
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