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Gift Aid - Frequently asked questions

What is Gift Aid?

Gift Aid is a simple way for charities to increase the value of gifts of money received from UK taxpayers. When you make a Gift Aid donation, the charity is able to claim back the tax that you have paid on the donation. This government scheme is called Gift Aid and amounts to an extra 25p for every £1 that you give.

Which parts of my payment qualify for Gift Aid?

Membership of Merton Youth Music and our Saturday Music Centre activities form part of the charity's educational objectives and as such are eligible for Gift Aid. However, we are required by HMRC to separate the ‘tuition’ element from our membership subscriptions as this does not qualify for Gift Aid under new guidance issued to the national music charity 'Making Music'. Consequently, we only claim 80% for the ‘membership’ part of our music making activities. The remaining 20% covers the cost of providing the ‘tuition' element.

Tuition fees for lessons, theory and instrument hire charges do not qualify for Gift Aid.

How do I sign up for Gift Aid?

Firstly, complete the Gift Aid Declaration Form when making a donation or paying your membership subscriptions - you only need do this once. This will inform Merton Music Foundation that you are a UK taxpayer and you would like us to reclaim the tax on your donations and membership subscriptions. We will then keep a record of all payments made to the charity and reclaim Gift Aid from HMRC. The funds received will be used to support the charitable purposes for which Merton Music Foundation was set up.

What is a Gift Aid declaration?

A Gift Aid declaration is a statement by a UK taxpayer asking for their donations to be treated as Gift Aid payments, so that the tax they have paid on the amount donated can be claimed back by the charity receiving the donation.

Can charities claim Gift Aid for previous years' donations and membership subscriptions?

Yes, HMRC have advised charities that they can apply for Gift Aid going back for a period of four years.

How does the Gift Aid scheme work?

When a UK taxpayer gives a gift of money to a charity, they have already paid tax on that money. Because charities are generally exempt from tax, they can claim an amount from HM Revenue & Customs (HMRC) equal to the tax paid on that money by the donor. This repayment from HMRC is known as Gift Aid.

How does this work in practice?

From 6 April 2008 the basic rate of Income Tax is 20 per cent. This means that for every £1 qualifying donation received, charities can claim repayment of 25 pence. If you give £10 to a charity and you are a basic rate taxpayer (20%), you will have paid £2.50 in tax on the gross donation (to take home £10, you will have earned £12.50 before tax). Charities are able to reclaim this £2.50 back from HMRC.

Who is eligible?

Gift Aid can be applied to any UK charity that is registered with HMRC.

To qualify for the tax to be reclaimed on eligible donations or membership subscriptions that you have ever made or will make to Merton Music Foundation, you must have paid or will pay an amount of UK Income Tax and/or Capital Gains Tax for each tax year (6 April to 5 April) that is at least equal to the amount of tax that all the charities or Community Amateur Sports Clubs (CASCs) that you donate to will reclaim on your gifts for that tax year. Other taxes such as VAT and Council Tax do not qualify. The charity will reclaim 28p of tax on every £1 that you gave up to 5 April 2008 and will reclaim 25p on every £1 that you give on or after 6 April 2008.

How can Merton Music Foundation reclaim 25% from HMRC when the basic rate of tax is currently 20%?

The Gift Aid reclaimed is calculated as 20% of the 'gross amount' of the donation - i.e. the value of the amount before you paid tax on it. So a net donation of £1 from you becomes a gross donation of £1.25 after the Gift Aid is added.

Some charities tell me that they can reclaim 28p, why is this figure different from the 25p mentioned above?

In the 2008 budget, the basic rate of tax was reduced from 22% to 20%. For donations made by donors on or after 6 April 2008, charities must claim Gift Aid repayments at the basic tax rate of 20% but they are also entitled to a transitional relief worth 3p for every £1 donation they receive under the Gift Aid scheme. This transitional relief has been provided by Government to allow charities to adjust to the fall in basic rate tax from 22% to 20%, and is paid in respect of all qualifying Gift Aid donations made to charities between 6 April 2008 and 5 April 2011. This means that for every pound donated under the Gift Aid scheme the charity will continue to receive 28p. Charities don't have to do anything extra to benefit from this transitional relief; HMRC will pay it automatically along with Gift Aid tax repayments.

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