Gift Aid and The Grand Charity

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Why all the fuss about tax-efficient giving?

The last Festival in Essex was Festival 2000 which was in favour of the Royal Masonic Benevolent Institution.  For most of the period that the Festival ran, the only tax-efficient form of giving was through what were known as “Deeds of Covenant”.  These were in a rigid legal format and had to provide for regular payments at least yearly over a minimum of four years.

Right at the end of Festival 2000, the “Gift Aid” system was introduced by which one-off donations of £250 or more were given the same tax advantages as Deeds of Covenant.

Since 2000, successive changes to the Gift Aid scheme have made it more and more attractive and it has swallowed up the old Covenant arrangements.  It can now apply to all donations, whether regular, one-off or intermittent and of any amount, no matter how small.  At the same time the rules regarding documentation have been relaxed so that the system has become very simple to operate.

Gift Aid has given charities an estimated £2 billion in tax rebates over the past decade and it is proving an increasingly attractive way to give.  Over the same period the use of Gift Aid has increased from 0.6% to 7% of all donations.

How much is Gift Aid worth to The Grand Charity?

Quite simply, the Government pays 28.2p to Grand Charity for every £1 donated under Gift Aid.  The cumulative effect of this can be staggering: £1,000 becomes £1,282, £100,000 becomes £128,200 and £1m becomes more than £1.25m.

How do I set up Gift Aid on my donations?

All that is required to set up Gift Aid is a simple declaration that can be made over the phone, face-to-face, by post, fax or email.  This declaration is essential because it gives Grand Charity permission to reclaim tax from the Inland Revenue.  It will usually state whether the declaration covers a specific gift or is open ended.

There is no statutory requirement for a declaration to be signed and dated. A date is needed only to identify a particular time period or start date.

In practical terms, Charity Stewards will wherever possible obtain a written declaration from eligible Brethren who have not already signed up to Gift Aid.  A supply of forms are being given to all Charity Stewards and the same format can be used for transmission by fax or e-mail.  It is suggested that oral declarations be avoided where possible and a Charity Steward who finds this his only option in a specific case is advised to contact the helpline and he will be talked through the procedure.

Gift Aid payments can be backdated to include all donations made to Grand Charity since 6th April 2000 and phrased to include all future donations until the donor informs The Grand Charity otherwise.

Must I pay tax to sign up to Gift Aid?

Yes.  The donor must have paid an amount of Income Tax and/or Capital Gains tax during that financial year equal to the amount of tax the charity will reclaim on their donations.

How do I know if I am a taxpayer and have paid sufficient tax?

Most of us are taxpayers.  You do not need to fill out a Tax Return and write out a cheque to be a taxpayer.  If you earn a salary and Tax is deducted from it under PAYE (Pay As You Earn), you are a taxpayer.  If you are retired and receive a pension paid by your former employer and tax is deducted from it, you are also a taxpayer.

If you are in receipt of bank or building society interest, tax is almost certainly deducted from it before you receive it.

If you do not pay tax directly, look at your payslips, pension advices, bank statements and other counterfoils.  All you need is to be satisfied that in any one tax year (to 5 April), you will have paid at least as much tax as The Grand Charity will be looking to reclaim.

Example: if a Brother is looking to make donations to Essex 2011 of £200 a year, the tax which Grand Charity would be looking to reclaim would total £56.40 each year.  The Brother would be able to make the donation under Gift Aid if he is paying tax of at least £56.40.  This represents £4.70 per month.  He should be able to tell from his payslips/pension advices etc if he is paying tax of at least this amount.

If a Brother is in still in doubt, he may call the helpline for assistance.  Such conversations will be in the strictest confidence with a professional accountant.

I pay some tax at the higher 40% rate.  Am I in the same position?

Essentially, yes.  The Grand Charity will be able to reclaim 28.2p for every pound donated.

However, as a higher rate taxpayer, you can obtain further tax relief by putting the donation on your tax return form.  This additional relief is at the rate of 18%, not only on the cash donation but also on the tax reclaimed by The Grand Charity.

The Essex 2011 Committee would ask higher rate taxpayers to take this additional relief into consideration when deciding the level of any donations.

Example:  If a higher rate taxpayer wishes to give £100, net of all taxes, he should make a donation of £130.  The Grand Charity will reclaim tax of 130 x 28.2p = £36.66, making a total received into the Essex 2011 Charity Chest of £166.66.

When the higher rate taxpayer completes his tax return, he can claim relief for the payment of £130.  The relief is calculated at 18% x £166.66 = £30.00.  This will be set against other taxes or repaid to the taxpayer. Thus for a net cost of £100 to the taxpayer, The Grand Charity benefits to the tune of £166.66.

This is an enormous benefit which should be utilised wherever possible.

In order to help higher-rate taxpayers complete their tax returns, Grand Charity will supply an annual summary of a brother’s donations under Gift Aid.
 

Can’t I donate my tax refund direct to Essex 2011?

Yes, you can.  Anybody who completes a tax return and who is due to receive a tax repayment can direct the Inland Revenue to pay all that repayment, or a lower specified sum, direct to a Charity of their choice. 

Whilst the Essex 2011 Committee would be delighted to receive donations in this way, it must not be considered a substitute for the “grossing-up” procedure for higher rate taxpayers set out in the previous section.  Most higher rate taxpayers are in a tax-paying position so the 18% relief described above (the £30 in the example) goes towards reducing their tax liabilities rather than resulting in a repayment of tax. It is nonetheless a real saving to them.

Is Gift Aid a form of Tax Avoidance, slightly shady?

Absolutely not.  Gift Aid is a deliberate Government policy whereby charitable donations are encouraged by the state giving to the charitable sector the tax which their supporters have suffered.

The Government will regard their policy as successful if greater use is made of the Gift Aid arrangements.

The Inland Revenue do of course make checks on a sample basis.  these are made at Grand Charity by checking their procedures.  Firstly, they check that Grand Charity holds the proper record of Gift Aid Declarations.  Secondly, through their computer system they may check a small sample of donors to check that they are indeed taxpayers.  It is unlikely that any individual will be aware that these checks have been made.

There is absolutely no reason to believe that the proper use of the Gift Aid arrangements will lead to any difficulties.

Need help with organising your Lodge? In the first instance email your enquiry to:

Essex 2011 Festival email helpline help@essex2011.org.uk  or phone helpline 01206-385364 (24hr answerphone)

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"Essex 2011" Provincial Grand Charity Relief Chest number: E1004B