We all like to do our bit for charity, but you can make your donations go even further by taking advantage of tax-relief schemes. We show you how you can donate more - at no extra cost.
Giving to charity is a great way to help a cause that is important to you, but sometimes a donation made in the traditional way doesn’t go as far as it could. However there are ways to increase the value of your donation at no extra expense – we show you how.
GiftAid it!
GiftAid is a nifty way to increase the value of your donation as it allows a charity to claim tax back on the money you give - so there is no extra cost to you. This is because any money that you donate will have already been taxed. However, by agreeing to GiftAid your donation the charity will be able to claim back the tax so that they benefit from the gross (before-tax) amount.
For example, if you are a basic-rate tax payer and donate £5 to charity, and agree to GiftAid your donation, the actual value of the donation to the charity would be £6. This is because for every £1 donated the charity would be able to claim back 20p (20% basic tax).
To GiftAid a charity donation you have to be a UK tax-payer and the charity will be able to claim back tax relief according to how much you usually pay. For example, if you are a basic-rate taxpayer you can donate an extra 20%, while if you’re a higher-rate taxpayer you can claim back the difference between basic and higher rate tax in your self-assessment tax return.
You might have come across the GiftAid option when making donations to charity, but may have been sceptical about it or been under the impression that you would be required to donate extra. However it really is worth ticking the GiftAid box as it means that your donations are increased at no extra cost to you. You are simply authorising the charity to claim back the tax you’ve already paid on your donation.
What’s more, until April 2011 HMRC will add an extra 3p onto every £1 donated. This works as an adjustment to the 2008 fall in basic rate tax from 22% to 20%. As such, if you are a basic rate tax-payer every £1 you donate to charity until 2011 will be increased to £1.28 (20p = 20% of £1 plus 3p HMRC adjustment) at no extra cost to you.
You can make a GiftAid declaration for a single donation, a series of donations, all future donations, or even back-date up to 6 years ago – as long as your donation was made after 6th April, 2000. For more help with tax-efficient giving, call the HMRC Charities Helpline on 0845 302 0203.
Get tax relief on assets
You can also get tax relief on any assets you donate to charity. For example, if you are donating shares, land, or property you can claim back 20% extra to give to the charity if you’re a basic rate tax-payer and 40% if you’re a higher-rate tax-payer. You can either declare this on your tax return if you’re a higher-rate tax-payer or fill in a P810 form from nearest tax office.
One of the main ways charities can keep going is because of donations made by people in their will. Legacies of money or assets in your will to be donated to charity are automatically free of inheritance tax, making for an incredibly tax-efficient way to donate however much you like to your chosen charity upon your death.
Donate as you earn
Payroll Giving allows you to claim back tax relief if you are part of a PAYE (Pay As You Earn) scheme. This means if you’re a basic rate tax-payer and make regular gifts to charities you can increase the value of your donation significantly. You can ‘Give As You Earn’ and have a specific amount donated straight from your gross salary every month.
Because the money is taken from your gross salary, the actual cost to you of a £10 donation would be £8 (minus 20% tax), while for higher-rate tax-payers a £10 donation would actually only cost £4 (minus 40% tax).
Use a charity credit card
A charity credit card allows you to automatically give to charity whenever you spend on the card. You can choose which charity you’d like to donate to and then be happy in the knowledge that every time you use the card for a purchase, a percentage of what you spend goes straight to a good cause.
However, though this sounds like the most convenient way to give to charity it’s likely not to be the most cost-effective. Many charity credit cards come with high interest rates and so you’ll have to make sure to pay off your balance in full every month – otherwise the interest will over-shadow the original value of your donation.
Use a cashback credit card
Spending with a cashback credit card could be a very convenient and cost-effective way to give to charity. By shopping around and finding a card that will give you a decent rate of cashback, you can earn a percentage back on whatever you spend. Then, instead of keeping that cashback to yourself, you could combine this with tax-relief methods to make a donation to charity that is truly worthwhile.
Of course it’s still worth comparing the amount you’ll be giving by using a charity credit card with the amount you could give by earning cashback – and go for the one that will pay your chosen charity more.
