What is Gift Aid and how does it work for Corporations?

Gift Aid is a UK government scheme that allows for tax relief on donations to UK registered charities. For individuals, the scheme allows the charity to receive an extra 20p for every £1 donated. When an individual donates money to a UK registered charity, it can claim back the basic rate of income tax on the donation. This is done by completing a Gift Aid declaration form and sending it to the charity which then allows the charity to claim back the 20% tax paid by the taxpayer. If the taxpayer is a higher rate or additional rate taxpayer, he can get relief for the additional tax paid above the 20% by doing a tax return or by calling HMRC and requesting that they change their tax code. This additional tax relief goes to the taxpayer instead of the charity.

Gift Aid for Corporations

Gift Aid for corporations is different from Gift Aid for individuals in terms of eligibility and benefits. As seen above, individuals who are UK taxpayers can use Gift Aid to increase the value of their donations to charity. For corporations, there is no such thing and the whole tax relief goes to the corporation that gives money to charity.

To be eligible for Gift Aid, corporations must be UK taxpayers and must donate to a charity that is registered with HM Revenue and Customs (HMRC). The donation must be made without any conditions attached, and the charity must not provide any significant benefit to the corporation in return for the donation.

There is no limit on the amount that can be given by a company to a charity under gift aid, as long as the company has enough taxable profits to cover the donation and the charity is recognised by HMRC. A donation cannot create a loss for the business. However, as mentioned above, there are some limits on the value of benefits that the company can receive from the charity in return for the donation. The value of the benefits must not exceed 5% of the donation, up to a maximum of £2,500 per donation. Additionally, the total benefit that can be received by a close company or connected persons from the same charity in the same tax year is £250. If benefits exceed these values, the payments will not qualify for relief under gift aid.

What's Allowed

1. Cash donations - Corporations can make cash donations to eligible charities and claim tax relief on the full amount donated.
2. Donating trading stock or land - Corporations can donate trading stock or land to eligible charities and claim tax relief on the full market value of the donation.
3. Payroll giving - Corporations can offer a payroll giving scheme to their employees, allowing them to donate to charity directly from their pay before tax is deducted. The corporation can claim tax relief on the total amount donated by employees through the scheme.
4. Sponsorship - Sponsorship payments can be eligible for Gift Aid, but only if they meet certain conditions. The payment must be made without any conditions attached, and the charity must not provide any benefit to the corporation in return for the payment. The payment must also be for a specific event or project, and not a general donation.

What's Disallowed

1. Donations with conditions - If a corporation makes a donation with conditions attached, such as a requirement for the donation to be used for a specific purpose, then it is not eligible for Gift Aid.
2. Providing benefits to corporations - If a charity provides any benefit to a corporation in return for a donation, such as advertising or publicity, then the donation is not eligible for Gift Aid.
3. Political donations - Donations made to political parties or election candidates are not eligible for Gift Aid.

Sponsorship

As mentioned earlier, sponsorship payments can be eligible for Gift Aid if they meet certain conditions. In addition to the conditions mentioned above, there are a few specific requirements for sponsorship payments to be eligible for Gift Aid:

1. The sponsorship must be for a specific event or project, such as a charity run or fundraising challenge.
2. The sponsorship must be made by the corporation as a business, rather than as an individual employee.
3. The sponsorship must be for the benefit of the charity, and not for the benefit of the corporation or any of its employees.

Gift Aid is a valuable tax relief that can help charities raise more money, but it's not limited to Individuals. Corporations can also play a vital role in supporting charities by donating money and claiming Gift Aid.