Unlocking the Power of Gift Aid for UK Charities

UK charitable organisations play a vital role in making a significant difference to people's lives. Many of these organisations receive no grants and rely solely on donations to fund their work. One of the easiest and most effective ways to enhance the value of donations is through Gift Aid, so we thought we would give a couple of quick examples to show the difference it can make.

21 July 2023
Reading time
Around 4 min

Understanding Gift Aid

Gift Aid is a UK tax incentive that encourages individuals to make charitable donations. When a UK taxpayer donates to a registered charity, the charity can reclaim the income tax on the value of the donation from HM Revenue and Customs (HMRC). This means that for every £1 donated, the charity can claim an additional 25p, making the total donation worth £1.25.

Example Scenario

So, what does that mean? Well, let’s consider a hypothetical small charity called “FBX Foundation,". This example is not related to any known charity of that name - this is just a name we are giving to our example.

Sarah, a generous donor, wishes to contribute £100 to FBX Foundation. Sarah pays income tax, so her donation can claim Gift Aid.

Calculation of Gift Aid

For a basic rate taxpayer in the UK, the current tax rate is 25p in the pound. For Sarah's donation, we can calculate the Gift Aid amount as:

Gift Aid Amount = £100 x 0.25 = £25

By adding the Gift Aid amount to the original donation, we see that the total value of her donation now becomes:

Donation Amount + Gift Aid Amount = Total Value

£100 + £25 = £125

Currently, tax payers pay 20% income tax on earnings up to £50,000, but over that threshold, it’s 40%. The good news is that if a higher rate taxpayer makes a Gift Aid donation, they can include that on their Tax Return and their £50,000 threshold is increased by the amount of their donation. This means they pay more tax at 20% and less at 40%. If Sarah were earning £50,000, her threshold would increase to £50,100 and she would pay only 20% on the extra £100, rather than 40%, so she would also gain £20 - the donation effectively costs her £60, not £100.

Now, let’s look at it from FBX Foundation’s point of view. FBX has an income of £90,000 in this tax year. Not all donations are from UK tax payers, so Gift Aid could not be claimed from everyone, but the amount of £65,000 was “Gift-Aid-able”.

If we use the same formula as above, the figures are:

£65,000 x 0.25 = £16,250.

The total of those initial donations (£90,000) is now boosted by £16,250 through Gift Aid. With a new total of £106,250 at no cost to the donors or the charity, this has a significant impact on the resilience of the charity.

By having a clearer picture of the funds they can expect through Gift Aid, charities can plan and make better decisions regarding their initiatives and long-term goals.

Encouraging Charitable Giving

Gift Aid not only benefits charities but also encourages individuals to donate more; knowing that their contribution will be attract an additional 25% for the cause can motivate donors to give more generously.

The examples above of FBX Foundation demonstrate not just how a £100 donation can be transformed into a £125 total value, but also the impact of all those donations together can have.

If you're a UK taxpayer, please do consider claiming Gift Aid when you give to charity. By doing so, you can contribute to causes you care about and help charities achieve their goals more effectively.

Together, we can make a difference and create a brighter future for those in need.

Maximise on Gift Aid for your donations and help create a brighter future