Gift Aid Explained
Gift Aid may appear to be a complex concept, but it is actually quite straight-forward. When a charity writes, "By declaring Gift Aid on your donation, you increase the value of your donation by 25p for each £1 donated," here's how this is calculated:
James Smith earned £1,000 last month. Assuming he paid tax at the basic rate of 20%*, £200 in tax was deducted at source, and James took home the remaining £800 in his pay cheque. In other words, £25 was deducted in tax for every £100 James took home in pay: (£200 tax / £800 take home pay) x £100 = £25.
James then makes a donation of £100 to Earthwatch. If James completes a Gift Aid declaration, Earthwatch can reclaim the £25 James paid in tax on this £100 donation. So, in total, Earthwatch receives £125 (£100 donation + £25 tax reclaim). Thus, by declaring Gift Aid on his donation, James has enabled Earthwatch to gain an extra £25 on top of his £100 donation, or 25p for each £1 he donated.
* From 6 April 2008, the basic rate of tax decreased from 22% to 20%. As a result, charities were faced with a reduction in Gift Aid recovery from 28p to 25p per £1 donated. The Chancellor announced that Gift Aid would continue to be paid for three years as if the basic rate of tax were 22%. Thus, charities can still claim 28p in Gift Aid per £1 donated.
If you are a UK tax payer, you will be asked whether or not you would like to "Gift Aid" your donation at the time you make your donation, whether online, in person, over the phone, or by post using an Earthwatch donation form. If you donated to Earthwatch in any of the previous four tax years and were a UK tax payer in those tax years, but did not declare Gift Aid on you donations to Earthwatch in those tax years, you can retrospectively declare Gift Aid on those donations. Earthwatch will then back claim the tax you paid on the amount of those donations in those tax years.
If a friend, family member, or work colleague is raising money for Earthwatch by participating in a sponsored event (such as running a race), and you are asked to pledge a donation, your donation can be "Gift Aided" so long as you declare your desire to Gift Aid the donation (tick box on the sponsor form) and provide your name and full address at the time you make your pledge.