What Is Gift Aid and How Does It Work

Introduction

Gift Aid is a government scheme that allows charities and community amateur sports clubs (CASCs) to reclaim basic-rate tax on donations made by UK taxpayers. It effectively increases the value of donations by 25 percent, making it an important source of extra income for thousands of charities across the country.

For donors, Gift Aid is an easy way to make their support go further. For charities, it provides a valuable and steady boost to funds. Understanding how it works helps both sides make the most of this generous scheme.

What is Gift Aid

Gift Aid was introduced in 1990 to encourage charitable giving in the UK. When an eligible donor gives money to a registered charity and makes a Gift Aid declaration, HMRC allows the charity to reclaim the tax that the donor has already paid on that income.

In practice, this means that for every £1 donated, the charity can claim an additional 25p from HMRC, provided the donor has paid enough tax to cover the claim.

For example:

A donor gives £20 to a charity.

The donor confirms they are a UK taxpayer and signs a Gift Aid declaration.

The charity claims £5 from HMRC, making the total donation worth £25.

The donor does not pay anything extra, and the charity receives more funds to support its work.

Who can claim Gift Aid

Gift Aid can be claimed by:

Charities registered with the Charity Commission (or the Scottish or Northern Irish equivalents).

Community Amateur Sports Clubs (CASCs) recognised by HMRC.

The organisation must be registered with HMRC for tax purposes before it can make a claim.

Each donation must be a genuine gift from an individual who has paid enough UK Income Tax or Capital Gains Tax during the same tax year to cover the amount the charity will reclaim.

Who can make a Gift Aid donation

To qualify for Gift Aid, the donor must:

Be an individual (companies cannot use Gift Aid).

Be a UK taxpayer who has paid at least as much tax as the charity will reclaim.

Provide a valid Gift Aid declaration confirming their eligibility.

If the donor has not paid enough tax to cover the Gift Aid claim, HMRC may ask them to pay the difference. Donors should therefore only tick the Gift Aid box if they are certain they have paid sufficient UK tax.

What types of donations qualify

Gift Aid can be claimed on most donations made by individuals, including:

One-off cash donations or online payments.

Regular donations by standing order or direct debit.

Membership fees, if the membership provides no significant benefit in return.

Donations from sales of goods through a charity shop (using the Gift Aid on donated goods scheme).

However, Gift Aid cannot be claimed on:

Donations from companies or limited liability partnerships.

Donations made through payroll giving (as tax relief is already given).

Payments where the donor receives more than a minimal benefit, such as event tickets or merchandise.

Donations made on behalf of someone else or from a joint account without permission.

How Gift Aid works in practice

The process for claiming Gift Aid usually involves four steps:

1. The donor completes a Gift Aid declaration

The charity must have a signed or recorded declaration from the donor confirming:

Their full name and home address.

That they are a UK taxpayer.

That they want the charity to claim Gift Aid on their donation.

Declarations can be paper-based, digital, or verbal (for example, over the phone), but they must be stored securely for at least six years after the last donation covered by the declaration.

2. The charity keeps accurate donation records

Each donation linked to Gift Aid must be clearly recorded in the charity’s financial system. This includes the donor’s details, amount, and date of donation. These records allow the charity to support its claim and provide evidence if HMRC requests an audit.

3. The charity submits a claim to HMRC

Charities can claim Gift Aid using HMRC’s Charities Online service. Claims can be submitted quarterly or annually, depending on the charity’s processes.

To make a claim, the charity uploads a list of donors and donations covered by Gift Aid. HMRC then verifies the information and pays the reclaimed tax directly into the charity’s bank account, usually within four weeks.

4. The charity monitors compliance

Charities must ensure all claims meet HMRC’s rules. This includes checking that donors are eligible, declarations are valid, and donations qualify. Regular reviews help prevent errors and protect the charity’s reputation.

Example of how Gift Aid increases income

A local community charity receives £10,000 in donations during the year. All donors are UK taxpayers who have completed Gift Aid declarations.

The charity claims 25 percent back from HMRC:

£10,000 × 25% = £2,500

The total income rises to £12,500, without asking donors for extra contributions.

Gift Aid for higher-rate taxpayers

Basic-rate tax is 20 percent, but higher-rate taxpayers (40 percent) and additional-rate taxpayers (45 percent) can claim extra personal tax relief through their own Self Assessment tax return.

For example, if a donor pays 40 percent tax, they can claim back the difference between the basic rate and higher rate on their donation. This means a £100 donation that costs the donor £100 is worth £125 to the charity, while the donor can personally reclaim £25 in tax relief.

Gift Aid on sponsored events and fundraising

Gift Aid can also apply to sponsorship donations made by individuals supporting someone in a fundraising event, such as a marathon or walk. However, donations from businesses, family members of participants, or anyone receiving a benefit (like free tickets) are excluded.

To ensure compliance, charities should provide clear guidance to fundraisers on who can and cannot tick the Gift Aid box.

Common mistakes to avoid

Accepting Gift Aid on payments that are not genuine donations.

Failing to keep donor declarations for the required period.

Claiming Gift Aid on company donations or payroll giving.

Not checking whether the donor has paid enough tax to cover the claim.

Including benefits or event tickets as part of a donation.

These mistakes can lead to HMRC reclaiming funds or imposing penalties, so careful record-keeping and staff training are essential.

How long to keep records

Charities must retain all Gift Aid declarations and supporting records for six years from the end of the accounting period in which the donation was made. This allows HMRC to verify claims during compliance checks or audits.

Benefits of Gift Aid for charities

Increases the value of donations by 25 percent.

Encourages more giving by making donations go further.

Provides a reliable source of additional income.

Helps build long-term relationships with donors.

Conclusion

Gift Aid is a vital scheme that allows charities to maximise their income from UK taxpayers at no extra cost to the donor. By understanding how it works, keeping accurate records, and following HMRC’s rules, charities can safely and efficiently boost their funding.

For donors, ticking the Gift Aid box is a simple way to make every pound count. For charities, managing Gift Aid correctly turns generosity into greater impact and long-term financial sustainability.