What is Gift Aid?
Gift Aid is a scheme enabling churches and charities to reclaim tax paid by a donor on eligible donations. It’s a generous scheme offered by the government to incentivise charitable giving, and we would love all donors to take advantage of the scheme. Through Gift Aid we can increase every eligible donation to our church by 25% (25p on every £1 donated) at no extra cost to either the donor or the church.
How does it work?
Let’s say you pay basic-rate tax and you take £10 from your pocket and put it in your church’s collection plate. That fact that you have that £10 to donate means you have already paid £2.50 tax (you earned £12.50 which was taxed at 20% leaving you with £10 after-tax income). If you Gift Aid your donation of £10, your church can reclaim that £2.50 tax from Her Majesty’s Revenue and Customs (HMRC) and add it to your donation. Thus for every £10 you give to your church with Gift Aid, your church gets £12.50; £10 from you and £2.50 from the taxman.
I thought it was 28p on every £1, not 25p?
It used to be, and you may see references to 28p instead of 25p on every £1 in some older Gift Aid literature. That is because Gift Aid is tied to basic rate tax. When basic rate tax was 22%, Gift Aid worked out at 28p in every £1 (to give £1, you had to earn £1.28 which was taxed at 22% leaving you with £1). In April 2008, the basic rate of income tax was reduced to 20%. This means you now have to earn £1.25 pre-tax in order to be able to give £1, and so the amount of tax the church can reclaim is now just 25p in the £1 not 28p. The change has only really had a material effect since 2011, however, because the government agreed to give charities an additional 3p ‘transitional relief’ on every 25p reclaimed until 5th April 2011 (to give the charities time to adjust to the new rate).
How much is Gift Aid worth to the Church?
Church of England parishes collectively reclaimed a whopping £80.5m from HMRC through the Gift Aid scheme in 2008! That’s sufficient to pay 3,500 clergy stipends and shows just how valuable the Scheme is to the Church. It is also a tribute to the hard work of volunteers running Gift Aid programmes in parishes throughout the country.
Since the year 2000, when £46.7m was reclaimed through Gift Aid, there has been a 72% increase in the amount of money reclaimed from HMRC by churches through the Gift Aid scheme.
That said, we still don’t reclaim Gift Aid on all eligible donations so there is scope to increase the amount of Gift Aid reclaimed by the Church even further. Gift Aid is ‘free money’ for the Church so we encourage everyone to use the scheme!
What about higher rate tax payers?
If you are a higher rate tax payer, we encourage you to read the additional guidance for higher rate tax payers here.
Click here if you are ready to make a decision about your financial giving to your church.