Two common problem areas for charities using gift aid

In our latest blog, our Head of Charities, Jenny Simpson, considers two common problem areas for charities utilising gift aid;

The gift aid scheme potentially allows charities to boost their income from donations but is not without its pitfalls.  On the whole charities are familiar with the requirement to hold and keep a valid gift aid declaration from the donor in case of HMRC inspection but there are other areas which can cause problems and we consider two of those here;

The Donor Benefit Rules

The rules say that nothing can be provided by the charity ‘in consequence’ of the donation, subject to any such gift falling withing the Donor Benefit Rules.  These allow gifts of up to 25% of the first £100 donated and 5% of any excess, in any year.  Thus for a donor of £300 the maximum value of any gift would be £35.  What can be provided as a gift and the way of valuing it is subject to complex rules (with items including literature about the charity’s work and some free admissions to charity property being exempt from the rules).  If charities are providing anything in return for a donation they need to be aware of the rules otherwise they may invalidate the gift aid claim resulting in a requirement to repay HMRC.

The donor hasn’t paid sufficient tax personally

If a donor has not personally paid sufficient tax to cover the tax reclaimed by the charity, then they are liable to pay that amount to HMRC.  Whilst this is not a liability for the charity, there may be a perceived obligation to repay the gift aid claimed so that the donor doesn’t have to do so.  This is an ex gratia payment and could be problematic for the Trustees, who would need to be convinced that there is a good reason for making the payment before doing so.  HMRC estimate that ‘significant’ gift aid claims are made in respect of donations where the donor has paid no or insufficient tax and so it may be an area they target going forward. 

Charities should make sure that they make it easy for donors to cancel enduring gift aid donations and that they promptly update their records when a cancellation is received.

This blog is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as a substitute for taking professional advice in any specific situation. Wylie & Bisset LLP (and its subsidiary Wylie & Bisset (Audit) Limited) will accept no responsibility for any actions taken or not taken on the basis of this blog. If you would like further advice or would like to discuss any of the issues raised in the blog then please get in touch with your regular Wylie & Bisset contact or use the contact form on our website.