- Gifts of cash to a registered charity by individuals
- Gifts of cash to a registered charity by companies
- Why it's worth doing - an arithmetic example
- How to register your organisation for Gift Aid
- Gift Aid declarations
- Reclaim of tax by the charity
- Time available to claim Gift Aid
- Lower rate taxpayers
- Membership subscriptions
- Assessing membership subscriptions for Gift Aid eligibility
- Where to go for further information
Any donation – however large or small – to a charity from a taxpayer is eligible for income tax relief. All that is required to claim the relief is information showing who has given how much and a declaration that the donor wants the tax to be reclaimed (which can be a written document, or a registration of a gift made by phone or by the internet). Donors do not need to fill in complex forms; declarations can be retrospective to cover the preceding four years; there is no minimum donation to qualify for tax relief; and donors do not have to agree to go on giving money for a fixed period of time. The only limit on the size of the donations is set by individuals' total tax liability - tax relief cannot be reclaimed that is greater than the total tax they are liable to pay.
The Small Charitable Donations Act 2012 means charities can claim Gift Aid style top-up payments on small donations of £20 or less without requiring the donor to provide a Gift Aid declaration. This is called the Gift Aid Small Donations Scheme (GASDS). There are conditions to be aware of and some changes that came into effect on 6 April 6 2017:
- You must have claimed Gift Aid in the same tax year as you want to claim a GASDS top-up payment
- You must not have incurred a penalty on a Gift Aid or GASDS claim in the current or previous tax year
- The maximum amount of small donations top up payment you can claim on is the lower of £8,000 or 10 times the amount you receive in Gift Aid donations (known as the matching rule). Example:
- If you claim £400 in Gift Aid you claim top-up payments on £4,000 worth of small donations - this would work out at a £1,000 payment under GASDS
- If you claim £1,100 in Gift Aid you could claim on £8,000 worth of small donations - which would work out at a £2,000 payment.
- You can claim on donations made using contactless debit and credit cards.
If you are making claims on donations made before 6 April 2017 some different conditions apply:
- As above you must have claimed Gift Aid in the same year and have incurred any penalties in the current or previous year.
- In addition you must have existed for at least 2 complete tax years
- The maximum you can claim is £5,000 worth of small donations or 10 times the amount you receive in Gift Aid donations
- You cannot claim contactless payments – only cash donations.
You can find out more about GASDS and the conditions that apply on the HMRC website.
Companies making a gift of cash to a charity pay the gross amount of the donation to the charity and claim it as a deduction from its corporation tax liability. The charity is thereby spared the job of reclaiming tax from the Her Majesty’s Revenue and Customs (HMRC).
You run a cultural charity. For all taxpayers: if someone gives you £10, you can reclaim a further £2.50 (basic rate at 20%) from HMRC. For you to receive £100, someone needs to give you £80, and you reclaim the £20. For higher rate taxpayers, your charity has a better argument. If someone gives you £10, you reclaim £2.50; and the taxpayer also reclaims another £2.50 from the Revenue (the difference between the basic rate tax which the charity reclaims and the higher rate) at the end of the tax year. It costs the donor only £7.50 to enable you to get £12.50. Equivalently, for you to receive £100, it would cost the higher rate taxpayer only £60.
In addition to this the government is paying a transitional relief supplement of 3p applicable to Gift Aid repayment claims made on qualifying donations made between 6 April 2008 and 5 April 2011. You will need to ensure that your Gift Aid declaration forms reflect this information (see sample below).
You need to register with HMRC Charities before you can claim tax back on Gift Aid donations or other income. You can do this by writing to or emailing HMRC’s Charity team (see address at foot of info sheet) with the following information:
- The name and full correspondence address of your charity
- Your charity registration number, if you’re already registered with the Charity Commission (CC) or the office of the Scottish Charity Regulator (OSCR)
- Details of your trustees, if you are a registered charity
- If you aren’t required to register with the Charity Commission (ie if your gross income is below £5,000 per year), you also need to send a copy of your governing document, details of your charitable activities and any literature which explains the work of your charity
- The date on which your accounting period ends
Charities simply need to make a 'declaration' of who the donor is, how much they are giving you, and that they want tax to be reclaimed. Declarations can be in writing, or given verbally or electronically, and charities may devise their own forms. See our template sample declaration forms.
Formally, a declaration requires:
- The donor's name, at least initials and full surname
- The donor's address, including housename/number and postcode
- The charity's name
- Amount of donation
- A description of the donations declaration relate to (present/future/past)
- A declaration or tick box that the donations are to be given as Gift Aid donations
- The date of the declaration (but declarations can be retrospective to the preceding six years, or four years from 1 April 2010) and
- Confirmation that it was explained to the donor that they must have paid enough Income Tax and/or Capital Gains Tax to cover the amount that ALL charities they donate to will reclaim for that tax year. Council tax and VAT do not count and the donor understands the charity will reclaim 25p of tax on every £1 that they have given (28p on every pound given for donations up to 5 April 2008)
Declarations can be verbal - in which case you must send the donor a written record of the declaration, ie a note covering the points set out above. Declarations can be also be made over the phone or by email. Again, you need to confirm with a note. Donors have the right to cancel a Gift Aid declaration at any time. If an 'oral donor' cancels within 30 days from the date of the written record you send them, the declaration will be cancelled completely, and no tax should be reclaimed by the charity.
The Charity needs to keep a record showing who has given what, so that it can trace every donation to a donor who has given a valid declaration. Once a declaration has been made, it can be valid indefinitely, if appropriately worded. We suggest a register of donors should be kept, including:
- Full name and address of donor
- Date of Declaration
- Amount paid
- Date of receipt of payment
The charity may also like to keep track of how much tax is reclaimable, by multiplying the amount received to date by 20/80.
As with all record keeping, the organisation will need to make sure it meets the requirements of the Data Protection Act - please see Making Music Information Sheet 32 for more details.
The Charity must ensure that a Gift Aid declaration has been received from all donors. These declarations should be kept on file by the group, and may be inspected by HMRC on demand.
On 22 April 2013 how you claim for Gift Aid is changing when the Charities Online service goes live. HMRC has a step-by-step guide on what you need to do to sign up for and use the service on its website – see the HMRC website for more info.
In future, you will have three options to submit Gift Aid claims:
- Through Charities Online (in which case you’ll have to register with that service), with the spreadsheet provided by HMRC. You download this in a format which is compatible either with Microsoft Office 2010 or above (Excel) or with the equivalent programme from LibreOffice which is a free operating system you can download from the HMRC website. There is much detailed guidance on the HMRC website.
- Also through Charities Online, but with your own software – this is unlikely to be you, it is generally an approach applicable to large charities with significantly more than a 1,000 donors per tax year.
- There is still an option of submitting a paper form. A new paper repayment claim form, called a ChR1, will replace all existing R68 claim forms. If you choose this option, ChR1 forms are available to be ordered now from the HMRC Charities Helpline (0845 302 0203). The form is designed so that HMRC can automatically scan the information into the new system. Old R68 forms or photocopies of the ChR1 will not be accepted because the new system will not be able to scan the information.
For the transition period to the new system, HMRC will continue to accept old R68(i) print and post forms until 30 September 2013.
However you submit the claim, the total tax claimable = total donations listed x 20/80, or:
Total donations x (Basic rate of tax ÷ (100 - Basic rate of tax))
Hence Gift Aid donations totalling £50 produce a tax refund for the charity of £12.50 (50 x 20/80) making the total received by the charity £62.50.
NB companies must include donations on their Corporation Tax return. Donations must be paid over to the charity gross, which means that the charity does not have to make a claim for donations from companies.
On 1 April 2010 the time available to make Gift Aid claims reduced from six years to four years. This means that most claims relating to periods that end in the tax year 2009/10 must be made by March 2014.
Provided that the donor has paid sufficient tax, their status in this respect is irrelevant. If a donor to a charity supplies a Gift Aid Declaration, and the tax reclaimed by the charity is more than the taxpayer has paid, the taxpayer will be liable to repay the difference to HMRC. Gifts from non-taxpayers are not eligible for tax reclaims under the Gift Aid Scheme.
There are limits on what benefits a donor can receive before the payment ceases to be considered a donation. Broadly speaking, the value of benefits given in respect of a donation cannot exceed 25% of the donation if it is less than £100, or £25 if the donation is between £101 - £1,000. For donations over £1,000, the benefit should not exceed 2.5% if the donation or qualifying subscription was made on or after 6 April 2007.
Please note that this guidance about benefits applies to bona fide donations only, and may not also be used in conjunction with the following advice about membership subscriptions.
Although membership subscriptions are not donations, there are some circumstances in which they can be considered eligible for Gift Aid by HMRC. This is a concession which focuses on charities achieving their charitable objectives.
The conditions attaching to the concession are that the membership subscriptions:
- do no more than secure membership of the charity: and
- do not secure a right to personal use of any facilities or services provided by the charity.
Having consulted with HMRC, we can advise that they regard rehearsal costs of a performing group (ie a vocal or instrumental group whose members participate in music making) as a charitable expense incurred by the group, and that they do not represent a tangible benefit to the individual members of the group. Hence the group may treat subscription payments from members in the same way as a donation for the purposes of reclaiming tax on behalf of those members, assuming they have paid tax at the appropriate rate and are prepared to sign a Gift Aid declaration.
Tuition, on the other hand, is considered to be a use of facilities or services, and as such, if a subscription includes a payment for any tuition the subscription will not qualify for Gift Aid treatment under the concession to that extent because it fails to meet condition (ii) above.
HMRC has asked us to advise members to take a closer look at the issue of tuition in their activities, to ensure that any costs associated with the provision of tuition are separated from what is classified as the membership subscription, and not included in any Gift Aid claims. How to assess your membership payments for eligibility is explained in section 12 below.
It is difficult to think of any other possible ‘benefits’ a member may receive in return for their subscription, but groups should bear in mind the benefit rules when arranging ticket deals for members (see next paragraph) and eg if arranging trips for members.
Music club members cannot usually Gift Aid their subscriptions because the benefits of membership mainly comprise the right to admission to concerts. In almost all cases the total admission charges would exceed 25% of the subscription paid. However, if members are willing to make a subscription payment to their group separate from their ‘season ticket’ this may be treated as a Gift Aid donation. Groups should be cautious about treating a portion of the season ticket as a donation, as this may devalue the tickets, compared to their price to non-members, and thereby constitute a benefit to members.
Where ‘free’ tickets are issued to members (or the right to attend a concert free of charge) the benefit to consider will be equal to the cost charged to the public to attend the concert. The same would apply to friends’ subscriptions where tickets or discounts for tickets are received in return for a subscription paid.
Similarly, educational establishments or summer schools, for example, cannot Gift Aid their subscriptions where the benefit is tuition and where tuition is paid for. If tuition is received free of charge, over and above the membership subscription, the tuition would be eligible for Gift Aid purposes if the tutor was to give tuition on a voluntary basis. If the tutor was paid, the benefit would be the cost of employing the tutor for the time spent giving the tuition to the individual.
It is impossible to give blanket guidance on this subject since the issue of tuition is open to interpretation. Making Music member organisations operate in different ways in pursuing their charitable objects: some will inevitably consider that rehearsals preparing their members for a public performance are effectively providing tuition to those individuals; whilst others may regard the rehearsal period prior to a concert simply as a means of preparation towards an artistic interpretation and therefore their participants are not receiving tuition in order to do this but are already fully formed in their capabilities. It is important that members take a considered view in their own organisations as to what extent members benefit from an element of tuition.
HMRC has asked Making Music to help ensure that members are aware of the rules regarding Gift Aid claims and of how to calculate the eligibility of member subscriptions within the scheme.
Here are some guidelines for assessing to what extent your activities enable your membership subscriptions to qualify for Gift Aid under the concession, and what should be excluded:
- With your committee and conductor/Music Director you should review your activities, particularly rehearsals, and take a view on to what extent they constitute tuition. For example:
- What is the typical personal journey for members between beginning a new piece of music and performing it?
- How much of the Music Director’s approach is about teaching or training members and equipping them with the right skills or understanding to be able to perform the music before them?
- Do members learn how to sing or play, and are they enhancing their ability to do so as a direct result of participating in rehearsals?
- Is part of your rehearsal process to be led by your music director or conductor note by note in order to learn your respective parts?
We advise that rehearsal practice which involves the choir being taken through the music in detail, eg in order for members of the choir to learn their parts, is usually treated as involving an element of tuition, although each case needs to be decided upon its own particular facts.
- If you have identified an element of the rehearsal provision which you consider to be tuition to members, you now need to assess what proportion of your costs (e.g. the fee of the Music Director, or part thereof) is attributable to tuition.
Members will then need to pay a corresponding tuition fee which covers this tuition cost, separate from their membership subscription. Members may still make a single payment to your organisation, so long as they are clear about how this is divided into a membership subscription and a tuition fee. The membership subscription should then include only those benefits such as rehearsal facilities which contribute towards the organisation meeting its charitable objectives. Such a membership subscription can then be considered as the qualifying total for Gift Aid purposes under the concession.
NB Even if you decide that all of your Music Director’s fees are incurred in the provision of tuition, it will be likely that other costs associated with your activities (eg. rehearsal venue hire, refreshments, accompanist, music hire, etc) will not be considered as the provision of personal benefits by HMRC and will therefore not prevent a portion of the payment you receive from members from satisfying the terms of the concession.
See Appendix below for an example calculation.
- You must ensure that you calculate the amounts that do and do not qualify for Gift Aid in advance of the membership year in question, and not afterwards
- The calculation must be based on known fixed costs where possible. Any required cost estimates should be based on the previous years cost in the absence of a more accurate indicator
- In the unlikely event that the amount collected from the individual member in payment of non-qualifying subscription fees is higher than that originally advised to the member in advance, any amount over and above the original advised amount cannot be considered eligible for Gift Aid
- Payments from members should be separated into a general membership subscription, which is eligible for Gift Aid, and a tuition fee, which is not. In this way the fees are clearly separate, and it is clear to the member in advance what they are paying for and what is and is not eligible. Members may continue to make a single payment for the total
- Payments made by an individual for somebody else's membership do not qualify for Gift Aid, for example where an individual pays for the annual membership subscription of his or her spouse. The payment will qualify if it is made by a parent or legal guardian on behalf of a child under the age of 18, or if it is for a family membership that includes the donor
- Because membership subscriptions are not gifts, and HMRC makes a concession to consider them eligible for Gift Aid, any payments will, of course, still have to satisfy the benefit rules described above and in more detail on the HMRC website.
How to apply this guidance
Any membership payments you receive from 1 September 2011 should follow these guidelines with respect to Gift Aid. Any membership subscription payments you received before 1 September may be considered for eligibility based on previous guidance to members which did not stipulate the need to separate tuition from a membership subscription in order for it to qualify.
A final note
It is important to be mindful of the fact that the HMRC concession to membership associations in qualifying for Gift Aid is due directly to the fact that such organisations are pursuing charitable objects. If your group is a full member of Making Music then it will be a charity with a charitable governing document, which means that first and foremost your activities should be focused on achieving your charitable objects.
HMRC has copious amounts of information available to assist with Gift Aid. The best method of accessing this is via HMRC website, but you can also reach them by post and telephone.
For charities in England, Wales, Northern Ireland & Scotland HMRC Charities, St John's House, Merton Road, Bootle, Merseyside L75 1BB, Tel - 0845 302 0203, Fax - 0151 472 6185
NB Whilst Scottish Charities are subject to different legislation in certain fields, the rules for Gift Aid are the same throughout the UK.
This example shows a membership payment might be assessed for separation into a tuition fee and a membership subscription, the latter qualifying for Gift Aid:
Choir A pays its Music Director £1,500 per year. Its committee agrees that of this fee, £1,100 is attributed towards providing tuition to members. Payments due from members are currently £75 per year and 40 members produce a total income for the choir of £3,000. Of the 40 members, 30 have signed Gift Aid declaration forms and pay UK tax as required by the scheme.
- Of each member’s payment to the choir, £27.50 constitutes a fee for tuition services provided by the Music Director (i.e. £1,100 ÷ 40)
- Of each individual payment, £47.50 can be classed as a membership subscription which qualifies for tax relief under the Gift Aid scheme (i.e. £75 - £27.50)
- 30 qualifying membership subscriptions generate a total figure for Gift Aid consideration of £1,425 (i.e. £47.50 x 30)
- Tax relief is claimed at Total qualifying income x (Basic rate of tax ÷ (100 - Basic rate of tax)) i.e. in this example: £1,425 x 20/80 = £356.25
- Claims for the period 2008-2011 will be eligible for the additional 3p transitional relief supplemented by the government, i.e. enabling you to claim 28p for every pound
You will need to provide your members with the information set out above to enable them to claim the appropriate deductions for higher rate tax purposes in their own tax returns.
We hope you find this Making Music resource useful. If you have any comments or suggestions about the guidance please contact us. Whilst every effort is made to ensure that the content of this guidance is accurate and up to date, Making Music do not warrant, nor accept any liability or responsibility for the completeness or accuracy of the content, or for any loss which may arise from reliance on the information contained in it.