Things to do before 5 April #2 – Make a Donation

Charitable giving is of course a very good thing. There are so many charities that need our support, especially at this difficult time when so many of their usual sources of funding are not available to them. Here at Chime we firmly believe in the benefits of charitable giving, which is why for every client we deal with, whether providing one off advice or ongoing services, we will make a donation to our chosen charities.

Charitable giving not only benefits the charity, but also provide benefits to those who give. Studies have shown that giving to charity will help boost both your mental and physical wellbeing. It will also reduce your annual tax bill if you are a higher rate taxpayer, and can offer a significant reduction in tax for those just exceeding the £50,000 or £100,000 thresholds.

In order to benefit from the tax benefits of giving, any donations made to charities should be subject to Gift Aid.  Making Gift Aid donations to a charity (or a Community Amateur Sports Club (CASC)) enables the charity or CASC to reclaim the basic rate tax paid by you on the amount donated. If you are a higher or additional rate taxpayer, you can then claim back the additional tax paid on your donation through your self assessment tax return, or by notifying HMRC if you don’t usually complete a tax return.

As with pension contributions, gift aid donations reduce your earnings for the High Income Child Benefit Charge (which affects those with children earning over £50,000) and Reduced Personal Allowance (for those with earnings over £100,000). The amount of the reduction is equal to the gross gift aid donation, thus if you made a donation of £80, your income for the year would actually be reduced by £100 (the gross donation) when calculating these charges.

This can provide a significant reduction in tax. For example, if a parent with 3 children earning £51,000 in a tax year made an £80 donation to charity, they would save tax of £45.45 (being the additional 20% tax reclaim for a higher rate taxpayer plus a reduction in the High Income Child Benefit Charge) and the charity would reclaim the basic rate tax of £20. So the total cost of a donation of £100 would be just £34.55.

If you want advice about reducing your tax bill, or help with completing your personal tax return, please get in touch and we’ll be happy to help.


Photo by Katt Yukawa on Unsplash