1. Ross Palmer September 2016 Gift Aid made simple

2. 1.How Gift Aid works 2.Gift Aid declarations 3.Donor benefits 4.Special situations 5.Gift Aid Small Donations Scheme (‘GASDS’) 6.Claims and record keeping 7.HMRC Gift Aid audits Agenda 2

3. 1. Gift Aid – two types TypeCharity can recover Gift Aid? Applies toExamples Corporate Gift Aid No UK corporation tax payers Companies Associations Societies Individual Gift Aid Yes, if conditions met UK income & capital gains tax payers Individuals Sole traders Partnerships LLPs Private trusts 3

4. 1. Corporate Gift Aid 1.No Gift Aid to be reclaimed by charity 2.Works purely as a tax relief for company 3.Company deducts Gift Aid from taxable profit to reduce Corporation Tax charge 4.No need for a declaration 5.But other Gift Aid conditions apply (monetary gift, donor benefit rules, anti-avoidance rules) 4

5. Gift Aid can be claimed if conditions met 1.Bona fide gift: No or minor benefits associated with gift 2.Tax to cover: Donor has paid UK income tax or capital gains tax to cover the gift aid 3.Monetary gift: Cash, not goods or services 4.Declaration: Written or oral 5.Anti-avoidance: not repayable and not part of a tax avoidance scheme 1. Individual Gift Aid 5

6. 1. Individual Gift Aid - how it works £100 net pay £125 gross pay + Gift Aid declaration + Gift Aid declaration £25 basic rate tax (20%) £25 basic rate tax At a 20% basic rate of tax, the Gift Aid is 25% of the gift value £100 gift Charity 6

7. 1. Higher rate relief Extra tax relief for higher rate taxpayers For £100 donation Equivalent to £125 gross donation 40% taxpayer paid £50 tax on the donation (£125 x 40%) Charity gets 20% back – i.e. £25 Donor gets tax relief of £25 Cost of donation to donor was £100 - £25 = £75 7

8. 8 1. What counts as a monetary donation? Cash Cheques (when cleared) Direct debit/standing order Credit/debit card Any currency

9. 9 1. What does not count In-kind donations Donations of goods Most purchases of goods or services (e.g. jumble sale, school fees) Raffle or lottery tickets Donations already receiving tax relief (e.g. charity vouchers or payroll giving)

10. In any tax year (6 April – 5 April next) The donor must have paid enough UK Income Tax plus UK Capital Gains Tax To cover all Gift Aid claimed On all the donor’s Gift Aid donations To all charities or CASCs Made in the tax year 1. Tax to cover 10

11. If HMRC establish the donor has not paid enough tax HMRC may ask the charity to voluntarily refund Gift Aid to HMRC But no obligation on the charity to do so (unless charity is complicit in tax avoidance) Otherwise HMRC will charge the donor 1. Tax to cover 11

12. Two types of Gift Aid declaration: 1.Written - paper, email, text etc. 2.Oral - phone, skype, face to face etc. Three types of written declaration: Single – covers a single gift Enduring – also covers past and/or future gifts Sponsorship – for sponsored events 2. Gift Aid declarations 12

13. Name of charity Name and home address of donor (inc. UK postcode if in UK) Identifies gifts to be Gift Aided (e.g. the enclosed gift and all future gifts) Request to treat as Gift Aided (e.g. please Gift Aid …) Date, if enduring declaration Tax to cover statement 2. Written Gift Aid declaration 13

14. HMRC provides model wording for the three types of written declaration (single, enduring and sponsorship) Advisable to follow In 2015 HMRC updated the models, for implementation from 6 April 2016 But OK to use up stocks of old declarations if ordered and printed before 21 October 2015 2. Model written Gift Aid declarations 14

15. Boost your donation by 25p of Gift Aid for every £1 you donate. Gift Aid is reclaimed by the charity from the tax you pay for the current tax year. Your address is needed to identify you as a current UK taxpayer. In order to Gift Aid this donation you must tick the box below: □ I want to Gift Aid my donation of £…………………………….. to (Name of charity). I am a UK taxpayer and understand that if I pay less income tax in the current tax year than the amount of Gift Aid claimed on my donations it is my responsibility to pay any difference. Title/First name or initials/Surname/Full Home Address/Postcode/Date 2. Model enduring declaration pt. 1 15

16. Please notify the charity if you: want to cancel this declaration; change your name or home address; or no longer pay sufficient tax on your income and/or capital gains. If you pay Income Tax at the higher or additional rate and want to receive the additional tax relief due to you, you must include all your Gift Aid donations on your Self-Assessment tax return or ask HM Revenue and Customs to adjust your tax code. 2. Model enduring declaration pt. 2 16

17. Obtain donor’s name, home address, postcode Ask donor if wishes to Gift aid Explain must have paid sufficient Income or Capital Gains Tax to cover all gift aid donations in tax year Send donor written record, including tax to cover requirement, and give 30 days to cancel If donor cancels within 30 days, treated as if had never made a declaration Keep record of letters sent (mail merge database OK) 2. Oral declarations 17

18. 2. Sponsorship declarations 18 Full NameHome addressPost code Amount collected Date collected Tick to gift aid £ ___._/ □ £ ___._/ □ Total collected£ ____.__ Date handed over to charity/ If I have ticked the box headed ‘Gift Aid? √’, I confirm that I am a UK Income or Capital Gains taxpayer. I have read this statement and want the charity or Community Amateur Sports Club (CASC) named above to reclaim tax on the donation detailed below, given on the date shown. I understand that if I pay less Income Tax / or Capital Gains tax in the current tax year than the amount of Gift Aid claimed on all of my donations it is my responsibility to pay any difference. I understand the charity will reclaim 25p of tax on every £1 that I have given.

19. Cap on the value of all benefits a donor, or a person connected to a donor, can receive in consequence of the gift if cap exceeded the gift cannot be Gift Aided 3. Gift Aid donor benefits 19 GiftMax benefit allowed Up to £10025% of the donation £100-£1,000£25 Over £1,0005% of the donation Overall limit£2,500

20. 20 3. Benefits Any item or service provided To the donor or a connected person In consequence of making the donation By the charity Or by a third party (unless an unconnected third party provides benefits unsolicited by either the charity or donor)

21. 21 3. Connected persons A person is connected to participant if they are: Wife, husband, civil partner Brother or sister Parent, grandparent Child, grandchild Married to a connected person Company under control of above Business partners

22. Literature explaining the charity’s work e.g. annual reports, newsletters Acknowledgements, not adverts for donor’s business. Naming a building OK but not business name Right of admission to view charity property – special rules – see below Priority booking rights Stickers, pins, badges etc. – must be of negligible value 3. Disregarded benefits for Gift Aid 22 But note that most of these are NOT ignored for VAT purposes

23. 3. Split payments Donor specifies £x to pay for benefit and £y donation before or at time of donation Works if £x market value can be established Gift Aid then available on £y donation Keep written evidence of split e.g. letter from donor Donor must be aware of the split when they make the donation 23

24. Government review of donor benefit rules after complaints that too complicated Proposals include: Gift aid net donation only (gross donation less benefit value) Value benefits on basis of cost Flat rate donor benefit limit (e.g. 10%) Legislate concessions for split payments, charity literature and averaging benefit values 3. Donor benefits review 24

25. 1.Retail Gift Aid Scheme 2.Admissions to view charity property 3.Sponsored events 4.Charity auctions 5.Supporter schemes 4. Special situations 25

26. 26 4.1 Retail Gift Aid Scheme Used to turn donated goods into cash donations Now used by many charity shops Normally a person donates goods to a charity shop As a donation of goods, cannot Gift Aid as Gift Aid restricted to monetary donations

27. 27 4.1 Retail Gift Aid Scheme Instead charity acts as selling agent of donor Sale proceeds belong to the donor which the donor then Gift Aids Donor signs an agency agreement and completes a Gift Aid declaration When goods sold, donor must be given choice to keep proceeds or donate Must notify the donor using HMRC template wording If no reply within 21 days charity can assume to be Gift Aided

28. 4.1 Retail Gift Aid Scheme From April 2013 two new ways of running RGAS Method A – for charity run shops. Donor agrees charity does not need to notify until proceeds go above £100 Method B – for trading co run shops. Donor agrees trading co does not need to notify until proceeds go above £1,000 Donor must be provided with an end of year summary statement (to 5 April) by 31 May (new requirement starting 5 April 2016) 17

29. 4.1 Retail Gift Aid Scheme Donor letters must follow HMRC templates. Download from HMRC website. Five templates: Standard method: notify any sales Method A notify sales above £100 Method B notify sales above £1,000 Method A end of year letter method B end of year letter Last updated by HMRC in April 2016 – use up to date versions 29

30. Admission fees to view charity property can be Gift Aided in certain situations: Admission to view property preserved, maintained, kept or created by a charity for its charitable purposes Grants 12 months admission or person gifts at least 10% more than the normal admission fee Can also grant admission to family members 4.2 Admissions to view charity property 30

31. Covers admissions to museums, galleries, collections, historic buildings, botanic gardens etc. Excludes admissions to performances But OK if a performance is incidental to viewing charity property E.g. historic re-enactment at historic site, or Interactive experiment in a science museum 4.2 Admissions to view charity property 31

32. If participant receives a benefit E.g. a paid for entry fee or travel/accommodation (e.g. challenge events), then seen as also being received by a connected donor such as a parent, grandparent, spouse etc. So benefits can block Gift Aid on donations from connected persons But not on donations from unconnected persons 4.3 Sponsored events 32

33. if participant personally pays an entry fee, reduces the benefit value potentially to nil So can permit gift aid on connected donations E.g. for London Marathon Gold Bonds, benefit value seen as being the cost of ordinary entry, not the gold bond fee So if charge runners an entry fee of the ordinary runner fee, can potentially Gift Aid all donations, including from connected persons 4.3 Sponsored events 33

34. If auction item has a known market value and if the donor is aware of this at the time of donation, can use the split payment approach Gift aid the excess amount paid above the market value Print market values in auction catalogues But cannot apply to ‘celebrity enhanced’ items 4.4 Charity auctions 34

35. 5. Gift Aid Small Donations Scheme From 6 April 2013 Pays a gift aid top up of 25% on eligible ‘small donations’ but no need to get declarations Can claim for up to £8,000 of small donations per year – max £2,000 to claim (before 6 April 2016: up to £5,000 of small donations, max £1,250 to claim) Each small donation max £20 in coins or notes, (not cheques, DD etc.) 35

36. 5. Gift Aid Small Donations Scheme But if make collections in ‘community buildings’ can also make separate GASDS claims for small donations made in each community building Community building = village hall, town hall, church, mosque, synagogue, cathedral, meeting room of a hotel must meet at least 6 times a year to deliver charitable activities to 10 or more beneficiaries Small donations must be made at such meetings 36

37. 5. Gift Aid Small Donations Scheme No benefits except lapel stickers and the like Good history of Gift Aid claims – complex rules Donation caps shared between connected charities 37

38. 5. Gift Aid Small Donations Scheme Uptake of GASDS has been low, so government proposals to open up to more claims: Allow small donations via contactless credit or debit card No history of good gift aid claims required Can claim either under overall rule or community buildings rule but not both Small donations collected in the same local authority area as a qualifying community building can be claimed 38

39. Three ways to claim Gift Aid (& GASDS top-ups) Direct database claim – software links directly into the HMRC systems, requires compliant software Spreadsheet upload – fill in an HMRC template spreadsheet and upload to the charity’s Government Gateway account Paper form – cumbersome, only for occasional claims 6. Claims 39

40. Spreadsheet claims: model sheets to download from gov.uk Gift Aid claim GASDS claim GASDS community buildings claim Each available in Excel or Libre Office formats When upload, HMRC system checks the data 6. Claims 40

41. Need to keep auditable records for at least 6 years from the last donation relates to: Gift aid claims Written Gift Aid declarations Oral declaration confirmation letters Gift receipt/banking records Donor notifications (change of address etc.) RGAS letters, calculation of benefit values etc. 6. Record keeping 41

42. Software available that will keep required Gift Aid records Scan in paper declarations Generate oral declaration documentation Link to receipt/banking records Make direct database claims or generate the upload spreadsheets Link into accounts system, CRM systems etc. 6. Record keeping 42

43. HMRC selects a sample of donations from claims made in the last year Asks, for each donation, for a Gift Aid declaration and evidence of receipt Also checks donor benefits etc. If charity unable to locate a valid declaration or evidence of receipt seen as a ‘problem gift’ 7. Gift Aid audit 43

44. Total value of problem gifts is divided by the total value of gifts in the sample to derive a sample error rate Depending on whether the sample error rate is above or below 4% and depending on the tax at risk HMRC may: Take no action or Allow the charity to try to repair the errors 7. Gift Aid audit 44

45. Repair = locate or obtain a new GAD or evidence of receipt 7. Gift Aid audit 45 Repaired error rateGift aid at riskAction taken Less than 4%Less than £100 No recovery in year of audit or earlier years. No card issued. Less than 4%Less than £500 Recovery in year but not earlier years. No card issued. Less than 4%More than £500 Recovery in year but not earlier years. ‘Yellow’ card issued. More than 4%Less than £500 Recovery in year but not earlier years. ‘Yellow’ card issued. More than 4%More than £500Recovery in year and earlier years

46. HMRC and charity agree remedial action HMRC then check again (normally within 3 years), if problem does not recur, no action taken If problem has recurred, HMRC assess for any periods still with assessment 7. Gift Aid audit yellow card 46