Gift Aid - A Practical Example

A Practical Example

• Mr Burns donates £100 to charity.

Mr Burns is a higher-rate taxpayer, paying 40% income tax on part of his income. He has made a Gift Aid declaration to the charity. As a result:

• the £100.00 gift is treated as being made after deduction of basic rate tax at 20%. The gross value of the gift before tax is £125 - this is the amount of money a basic rate taxpayer would need to earn to receive £100.00 after tax.
• the charity can claim the £25 of basic rate tax (£100.00 × 20/80) that the taxpayer is treated as having paid on the gift, effectively an extra 25% on top of the value of the £100.00 donation (although until April 2011 a special supplement of £3.21 is paid by HMRC, so that the charity receives the same benefit as before basic rate tax was changed from 22% in April 2008)
• as a higher-rate taxpayer, Mr Burns can also claim back 25% of the gift, £25 (£100.00 × (40 - 20)/80), when he makes his tax return.