Tax Deductions for Charitable Contributions: An Overview

Donating money to charities is one way to make sure it goes where it’s needed most. But if you want to save some cash while doing good, there are ways to donate without paying taxes. Here are three tips to help you do just that.

1. Payroll Deduction

If you work for a company that offers matching funds, you can deduct up to 25% of your salary from your taxable income. This includes deductions for charitable contributions. If you’re self-employed, you can still claim a deduction for donations made directly to a charity. You’ll need to keep detailed records of how much you donated and what you spent the money on, though.

2. Gift Aid

You can claim a donation made to a registered charity as long as you paid enough tax on your earnings to cover the amount of the donation. For example, if you earn £50,000 a year and donate £10,000 to a charity, you’ll receive a refund worth £5,000. To qualify for a refund, you must fill out a form called a Gift Aid declaration. Your employer or bank will provide this form to you free of charge.

3. Gift Cards

Gift cards are another great way to donate to a charity. They’re usually cheaper than giving cash, and you won’t have to worry about getting reimbursed. Just remember that you’ll lose the value of the card over time, so you might want to use a debit card rather than a credit card.

Donations through Gift Aid

Charities and community amateur sport clubs (CASCs) are now able to register with HM Revenue & Customs to receive donations through GiftAid. This allows donors to claim back the tax they’ve already paid on their donation, rather than paying it again once the charity or CASC has received it.

The government introduced the scheme in April 2017 and since then over £1 billion has been raised through Gift Aid.

HMRC says that charities and CASCs registered under the scheme are required to provide information about how much they spend on fundraising activities, such as events and advertising campaigns. They must also tell HMRC whether they have ever had a problem with fraud or abuse.

If the charity or CASC gets more money than has been given, HMRC may ask that the donor pays additional tax to cover the difference.

You pay Income Tax in excess of the basic rate of 20%

If you make donations to registered charities, you could be able to reclaim some of those payments. This includes gifts made up to April 5th 2018, even though the deadline for claiming back taxes has now passed. Charities must register themselves with HMRC. If you don’t know whether a charity is registered, check out Charity Commission UK.

The rules for Gift Aid vary depending on how much you give. For example, if you donate less than £20, you won’t be able to claim back anything. However, if you donate more than this amount, you’ll be able to claim back the difference between what you’ve donated and the basic rate threshold (£7,500).

Donating to registered charities is one way to reduce your taxable income and therefore save money. But it’s important to note that there are limits to the amount you can claim back. These include:

– Gifts worth more than £50 per person

– Gifts given to children aged 17 or younger

– Gifts given to people who live abroad

– Gifts given to religious organisations

You get Married Couple’s Allowance

If you are married and one of you donates money to charity, you could benefit from receiving more money back. This is because you could claim Gift Aid on your donations. If you give £5,000 to a registered charity, you could potentially receive up to £1,250 back.

The rules governing the Gift Aid scheme mean that it is possible to make a charitable gift without paying income tax. You must complete Form G3111 and send it to the Charity Commission within 28 days of making the donation. Once completed, you can reclaim 25p of the basic rate of Income Tax per pound donated.

HMRC will automatically add the value of the Gift Aid form to the total value of your donation. They will then refund the difference to you.

Payroll Giving schemes

Employers can give money to charities from employees’ wages without having to pay income tax or National Insurance contributions. This is known as a payroll giving scheme. If you are eligible, you will receive a Gift Aid Declaration Form from HM Revenue & Customs.

You must be able to prove that the donation is being made out of genuine motives. For example, you cannot claim Gift Aid for donations made purely because it’s part of your job.

The amount of tax relief depends on how much you donate and whether it exceeds £250.

If you make a gift of over £10,000 each year, you could save up to 40% of the value of the gift.

What you need to do

The deadline to donate to one of Canada’s largest food banks is fast approaching. If you haven’t already donated, there are still plenty of opportunities to help those less fortunate during the holiday season. Here’s what you need to know about donating to Food Banks Canada.

Paying sufficient taxes to be eligible for Gift Aid

Charities are being encouraged to ask donors about their taxable incomes. This could help charities make sure donations come off taxpayers’ hands without losing out on Gift Aid. If you’re donating money to charity, it’s important to know whether your donation counts towards qualifying for Gift Aid – otherwise, you’ll miss out on a potential tax refund.

Donors who pay too little income tax might lose out on the benefit of Gift Aid. For example, someone earning £20,000 per annum and paying no income tax at all won’t receive a rebate on their gift. However, someone earning £50,000 and paying just 10% income tax will still receive a rebate.

If you donate cash or goods worth less than £40, you don’t need to declare your donation. But if you give anything over £40, you must tell HMRC how much you donated. You can do this either online or by filling out a form.

The deadline for filing your return is April 5th 2020.

Higher rate taxpayers

The government announced today it will change how people donate money to charities. From April 2020, higher rate taxpayers will be able to make charitable donations through payroll giving. This means that donors can choose to pay themselves rather than donating through the taxpayer’s personal allowance.

This announcement follows research showing that many people are unaware of the options available to them to make charitable donations. Research showed that nearly half of UK adults don’t know about payroll giving, and one third of people didn’t realise they could use it to make a donation.

HM Revenue & Customs (HMRC) says that this change is intended to help raise awareness of the option to donate through payroll giving. People will still be able to make donations through their personal allowances, but HMRC wants to encourage more people to do so.

Donations made through payroll giving are taxed at 40% plus 20p per pound of salary over £150,000. For example, someone earning £50,000 a year would pay £10,000 in taxes on their donation. If you want to find out more information about how to set up payroll giving, please contact us.

For more information about the changes to payroll giving, see here.

Getting tax relief sooner

If you are planning to make donations to charity in 2017/18, you could benefit from claiming tax relief now. You can still do it even if you won’t be paying higher rate tax next year.

You can claim tax relief on donations made in the current tax-year if you miss the deadline or will not be paying higher rate tax in the same tax year. This applies whether you are donating cash or goods.

The deadline for making donations in 2017/18 is 31 December 2018. However, there is no limit on how much you can donate.

If you want to claim tax-relief earlier, you should contact the Charity Commission for England and Wales. They will provide you with information about what you need to do.

Frequently Asked Questions

How do you file for a tax refund?

If you want to make sure you don’t miss out on claiming tax relief next April, it’s important to complete the charitable giving section on the Self Assessment Tax Return or ask HM Revenue & Customs (HMRC) to amend your tax code.

You’ll receive a letter asking whether you’ve donated money in the previous 12 months, and if so, what amount. If you haven’t given anything away, you won’t be asked about it.

The charity giving section asks for information such as the name of the organisation, the date of the donation, and the value of the gift.

If you give £5 or less, there are no deductions. But if you donate over £250, you could save thousands of pounds in taxes.

How long can you file a claim?

Overpayments are sometimes referred to as ‘tax credits’. You might think that if you overpaid your taxes, you’d still owe money – but you don’t. HM Revenue & Customs (HMRC) allows taxpayers to reclaim some of what they paid. However, there are limits to how much you can claim back.

For instance, if you’re claiming back because you overpaid your income tax, you’ll only be able to do so if you’ve been paying income tax since 2012/2013. And if you’re claiming back for the amount you overpaid your corporation tax, you’ll only qualify for that refund if you’ve been paying corporation tax since 2011/2012.

You can only claim back up to five years after the end of each tax year. So if you want to claim back for the 2017/2018 tax period, you must file your application by 31 January 2020.

If you’re unsure whether you can claim back, contact HMRC on 0300 123 5000 or visit gov.uk/claimback.