Gift Aid pitfalls

Tax changes could mean a liability for donors who are no longer taxpayers. Charities should check the wording of their declaration form. 

The increases to the personal allowance in recent years have taken significant numbers of individuals out of income tax and the changes listed below have added to that trend:  
  • The increase in the starting rate band to £5,000 and the reduction of the savings rate to 0% from April 2015.

  • The introduction of the personal savings allowance of £1,000/£500/nil (depending on rate of tax paid) from April 2016.

  • The removal of the tax credit on dividends and the introduction of the £5,000 dividend nil rate band from April 2016. 

There is a risk that more people will now pay insufficient tax to cover their gift aid donations and will have a liability to make good any shortfall to HMRC. Individuals who are paying a small amount of, or no, tax should consider carefully whether to sign declarations for any new donations and whether they should withdraw existing declarations for ongoing donations. HMRC guidance for individuals is available: Tax relief when you donate to a charity.

HMRC has updated the gift aid declaration guidance and templates to make the non-taxpayer’s potential liability much clearer. Charities should check whether the wording they are using complies with the latest HMRC guidance from April 2016 as the charity may be liable if they reclaim gift aid and do not hold a valid declaration.

Agents may wish to alert their low income and charity clients to these risks.