Gift Aid is a widely recognised ‘brand’, letting UK-based charities claim back 25p from every £1 donated. It’s now a no-brainer for any registered charity and it’s worth thinking about ditching that VATable booking fee and asking customers to make a Gift Aidable donation at the point of booking instead.
Arts organisations which are also registered charities are in a particularly good position to take advantage of the benefits of Gift Aid as they can ask for donations at the point of booking and benefit from capturing customer data to enable them to make the claim.
The process for submitting claims has been made much easier through technological advances and direct integration with HMRC, but there’s been a tightening of the rules in recent years (possibly due to the £170m of tax which HMRC estimated that it lost in 2013 through fraud, avoidance and error relating to Gift Aid). This has led to organisations sometimes missing out on the benefits of Gift Aid as they don’t completely understand the ins and outs of the process. To make it easier for your organisation, here are a couple of things you need to know about Gift Aid to help you get the most out of it.
Get the declaration from the donor
To claim Gift Aid, charities must obtain a declaration from the donor, stating that their income tax is equal to, or greater than the value of Gift Aid that the charity will claim. This declaration now applies to all donations the donor makes across all charities and the responsibility is on the donor to inform the charity if their Gift Aid status changes. Here's an example of a charity Gift Aid declaration.
The good news is that the process of gathering a Gift Aid declaration has become slightly easier. Whereas initially these declarations had to be made in writing, it’s now possible for donors to make a verbal declaration at the point of donating, with the charity then sending a written confirmation of the declaration that has been made. There’s less paperwork involved and it negates the need to chase donors to sign the declaration after making a donation which was never a great way to say thanks.
Make sure you don’t irritate your donors by asking them to make a declaration every time they give, and so you’ll want to have software that stores this declaration with the option of updating it if circumstances change.
Be careful with donor benefits
For a donation to be Gift Aidable, the donor can’t receive a benefit and the donation has to be optional. The issue around benefits can be tricky, because it seems quite reasonable that you would offer some benefits to your donors as a thank you. You can still do this, but it will mean that you can’t claim Gift Aid on the whole donation. Instead you’ll just be able to claim on the value of the donation that isn’t related to a benefit. You’ll need to think carefully about Gift Aid you’re claiming on things like membership and make sure that you know, and have made clear to your donors, what the benefit and donation breakdowns are.
There’s added complexity here too, because the value of the benefit isn’t what it costs you as the charity, but it’s instead the perceived worth from the donor. Think about those benefits that money can’t buy, that you don’t sell elsewhere, because you need to work out what the perceived value is of these benefits too.
Once you have figured out your benefit and donation amounts in each item, you’ll need to clearly display this to your customers and log this correctly at the point of sale, so make sure your ticketing, fundraising and CRM system can handle split items within your membership schemes.
Claim Gift Aid on fundraising events
If you’re organising a fundraising event then you’ll be keen to claim Gift Aid, but if you want to make a successful claim you need to:
- Work out what the ‘perceived cost’ would be. Anything over and above this can be treated as the donation value which means you’ll be able to claim 25p in every £1 donated from those donors eligible for Gift Aid.
- The donation value must be optional and cannot be enforced - this means you need to allow for the fact that some customers could purchase for your fundraising event without making a donation. For a high profile fundraising event, you will need to look at how you can best maximise on the potential revenue, and this might be by removing the donation element (and therefore losing the Gift Aid) so that you can set a higher fixed price for this event.
It might work out that claiming Gift Aid on fundraising events is the right option for you, but you may find that you can benefit from a VAT exemption. This could make you a further 20%, as you won’t need to pay any VAT on the tickets you sell for these events, but you can still price them competitively. Under the current legislation you can do 15 of these events in a year. The good news with this option is that you can still reclaim the VAT included in any costs relating to these events.
Be aware of Gift Aid exceptions
Generally, you won’t be able to claim Gift Aid on tickets sold for their core activity, but there are some exceptions. For example, a ‘charity property’ can Gift Aid a donation that allows visitors to view the property (so essentially the entry fee) a long as it’s 10% more than the normal admission fee, or admission is allowed for at least 12 months. This option is very popular for visitor attractions, with Transport Museum London and St Paul's Cathedral both offering this. As nearly all visitors can be offered the annual pass option, which is treated as a donation, you can claim Gift Aid on the whole amount. Remember that in this case, it’s still necessary to offer customers the option to buy just the entry fee without making the donation.
Know the benefits for higher rate taxpayers
An area which charities should make more of are the benefits for higher rate taxpayers when making Gift Aid donations. Higher rate taxpayers get a real incentive for making donations because this will reduce their overall tax bill - for the purposes of Gift Aid the rate reclaimed by the charity is 25%, but a higher rate taxpayer can claim back the difference between their usual tax rate and the basic rate on the donation. In the USA this sort of incentive to donate works really well, but in the UK we don’t seem to make such a big deal of it. It might be an idea to make a push for donations at around the time people are filling out their self assessment.
Remember to claim your Gift Aid
It’s estimated that around £750 million is lost every year in unclaimed Gift Aid and so it’s vital you don’t miss the deadline to make the claim. After putting in the hard work of making sure you’re working in the rules of Gift Aid and communicating them to your donors, remember to send off your claim within four years of receiving the donation to make sure it’s still eligible.
This has now become easier and hopefully your ticketing and CRM system can do much of the work for you, allowing you to focus your efforts on keeping your donors engaged and keeping the Gift Aidable donations flowing!
Because you can reclaim up to four years’ worth of donations, it means that if a previous donor makes a declaration at a later date, you can reclaim all their previous donations provided it’s within that four year window. It might be worth a spot of housekeeping here to identify those donors who have made regular or sizeable donations but who haven’t made a Gift Aid declaration. As you can backdate the donations from the last four years, then this could be a profitable task. It could also be combined as a thank you letter to promote future donations too.
What’s next for Gift Aid?
It looks like HMRC are aware that in recent times the Gift Aid rules have become increasingly complicated and this has resulted in a lack of understanding from donors and charities. The good news is HMRC are currently conducting a review into Gift Aid benefit rules. To make sure you stay on top of the changes, be sure to check out the Gift Aid website.
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Tom Nolan is Head of Global Ecosystem at Spektrix