Last Updated on 14 November 2022 by Dan
Hello all! Now that things are open again, I just wanted to share a little tip I discovered when taking a pile of old books and clothes to the charity shop last week in terms of getting an extra Gift Aid benefit on physical goods.
Gift Aid is something most of us will be familiar with from making a monetary donation to a charity. it allows the charity to claim a basic rate of tax paid on your donation back, effectively making that donation go further. If you’re a higher or an additional rate tax payer you can also claim some tax back for your donation and get some personal benefit beyond a warm glow in your heart from giving!
Now, I was looking to just make a donation of some books I didn’t need anymore when I went into my local charity shop rather than expecting to learn financial lessons…..
I’d stopped to have a chat with the lady running the shop about their reopening and actually discovered I was able to unexpectedly help both the charity and myself further through additional Gift Aid where donating an item to be sold. I thought it was worth writing about this as I think it’s a less well known aspect of the Gift Aid scheme.
How does Gift Aid on a physical donation work?
The additional Gift Aid on a physical donation works because by registering with the charity that you are eligible for Gift Aid, they can actually claim the Gift Aid on whatever they sell your donation for which provides a further boost to charity fundraising.
The charity will then tag your donation when it comes in to link it with your membership, and means your donation will become associated with you and tracked through the lifecycle. Helpfully I’ve found that once you’re registered, charities who do this scheme will then provide you with labels or a scannable fob so you’re able to make linked donations more quickly in future.
At the end of the tax year, the charity will then add up the sales value of any goods you’ve donated and let you know what they received in exchange for your donation.
As the charity has been able to turn what item you gave them into effectively a cash donation. They claim the Gift Aid on this to make that finance go further, and if you’re eligible you can do the same in your tax return and claim the appropriate tax relief.
Can I claim Gift Aid on physical donations at all charity shops?
Unfortunately not. Tracking the gift aid creates quite an administrative burden so it’s likely to be offered at bigger charities only, but it’s always worth asking.
This is because the charity needs to be able to track your donation from start to end – being able to link any product to yourself, then track what it’s sold for in practice and notify the person who made the donation.
Any charity can theoretically do that, but realistically that’s going to be reliant on an effective computer system to make it happen which smaller charities are less likely to have.
How do I declare Gift Aid to claim the tax relief?
If you’re a basic rate taxpayer there’s nothing to do, as the tax relief on the Gift Aid is automatically claimed by the charity.
If you’re a higher or additional rate taxpayer you need to fill out a self-assessment tax return and note any donations in the “Charitable Giving” section to claim the relief. (It is apparently also possible to call HMRC to declare your donations per the Gov.uk website).
For this reason it’s worth keeping a log of any charitable donations you make during the year, and to keep those records to have an audit trail if subject to any challenge.
How do I know if I’m eligible to donate with Gift Aid?
The majority of people earning an income above the personal allowance (£12,570 in the 21/22 tax year) will be eligible.
Specifically, the HMRC rules state need to be either paying more in income tax or capital gains tax than the donation being made, and then have made a declaration that you are eligible to receive Gift Aid.
If you subsequently become ineligible, you need to let the charity know as soon as possible, as they can’t claim Gift Aid on your funds.
Other ways to give to charity
There are plenty of other ways to get involved with a charity – donations with Gift Aid are always appreciated by them, but you can give time and support in other ways.
Whilst Gift Aid is good, you can also make a regular donation by a Give as your Earn scheme if your work offers – both tax efficient and charities appreciate it as you make a regular donation. Read more about Give as you Earn here!
If you have any questions about Gift Aid, or if you’re made donations to a charity and been able to help them out further then we’ve love to hear about it! Just leave a note in the comments below.