|
Check your Tax position before giving under
Gift Aid because of imminent changes, advise Tax experts
WITH the start of
the new UK Tax Year, the Low Incomes Tax Reform Group (LITRG) reminds individuals
who give to any charity or Community Amateur Sports Club1 under Gift Aid, to
check that they will still pay enough Tax in 2016/17 to cover the amount of Tax
the recipient will reclaim on their donation during that Tax year.
LITRG has issued the advice ahead of the new Tax Year to explain how changes to
the Tax system will impact on Gift Aid donations which could leave non-taxpaying
donors with an unexpected Tax bill, as explained below.
Anthony Thomas, LITRG chairman, said:- "We remind individuals on low
incomes not to sign any new Gift Aid declaration unless and until they have
checked their overall Tax position for the coming year. Also, anyone who has
signed a Gift Aid declaration in the past, but who thinks that with the changes
to the Tax rules shortly coming into force they may no longer be liable to pay
Tax, should seriously consider cancelling the declaration and finding another
way to give. Charities really should remind their donors annually about the
requirement to pay enough Tax to cover their gift aided donations. Some do this,
but many do not. It would be an unfortunate start to the new Tax Year if
generosity towards a charity brought a donor an unexpected Tax bill in its
wake."
With more individuals being taken out of Tax as annual increases in the personal
allowance exceed inflation, there may be many cases where a donor who signed a
Gift Aid declaration at a time when they paid income Tax has since become a
non-taxpayer. This is even more likely to be the case in 2016/17 for a number of
reasons:-
1) From April 2016, every basic rate Taxpayer will get the 1st £1,000 of their
savings income paid tax free, and everyone in receipt of dividend income will
get the 1st £5,000 of such Income Tax free.
2) Also from April 2016, the system whereby a Tax Credit was attached to each
dividend payment has been abolished, so those who used dividend Tax Credits to
set against the Tax on their Gift Aid donations will no longer be able to do so.
3) Since April 2015, for those entitled to the starting rate of Tax on savings (ie.
with total incomes below £15,600 in 2015/16 some of which was from savings), the
starting rate has been zero%.
The way in which the Gift Aid scheme works is that the donor effectively
transfers a slice of their Taxable income to the charity to which they donate.
The net amounts of their gift, plus the Tax on it, form a gross amount on which
the charity can reclaim the Tax paid by the donor. For example, if an individual
gives £80 under Gift Aid, the charity can reclaim £20, making a gross donation
of £100.
It follow that individuals who give to charity using the Gift Aid scheme are
required to have paid at least as much Tax during the relevant Tax Year as the
charities to which they donate will reclaim in respect of their donation. If
they do not, they are responsible for paying the shortfall to HMRC.
There are situations in which HMRC will invite the charity to repay the Tax they
have claimed on a gift made by a non Taxpayer; despite that, by law the donor
remains responsible for paying it. LITRG is also pressing HMRC not to pursue non
Tax paying people for any Tax due on donations they make under Gift Aid, saying
it is fairer that reimbursements should come from the charity.
|
