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.
Example
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:
the name of your charity or CASC
the donor’s name
the donor’s home address
whether the declaration covers past, present or future donations or just a single donation
a statement that the donor wants Gift Aid to apply (this could be a tick box on a written or online declaration)
an explanation that the donor needs to pay the same amount or more of UK income tax and/or Capital Gains Tax as all charities and CASCs will claim on the donor’s gifts in a tax year and that the donor is responsible for any tax shortfall.
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).
