New data published by HMRC shows that for the tax year ending April 2022 tax reliefs for UK charities and their donors were £5.4 billion – less than 1% different compared to the previous year.
The data shows that Gift Aid paid at the basic rate of Income Tax, direct to charities, was down 3% at £1.3 billion, but according to HMRC, this reduction was caused by it putting on hold more claims than usual in March 2022 for extra risk assessment. It paid most of the affected claims in April and May 2022, with these to appear in next year’s statistics. The amounts claimed by charities in that period are not affected and have risen slightly year-on-year.
The remaining largest tax reliefs in tax year ending April 2022 were all similar to the previous 2 years:
- non-domestic rates (business rates) reliefs, down less than 1% to just under £2.4 billion
- relief for higher rates of tax on Gift Aid donations, paid to individuals, is forecast to be steady at £0.5 billion
- Inheritance Tax reliefs for donations, down 4% at £0.8 billion
- smaller reliefs (where an estimate is available) were worth around £0.4 billion
Just over half of the value of Gift Aid repayments went to charities that received less than £1 million each, in line with previous years.
The proportion of individuals declaring a donation via Self Assessment held steady at 11% in the first year of the pandemic, ending April 2021, although the number of donors has dropped 4%, in line with a similar fall in the number of people submitting Self Assessment returns. Total donations declared by Self Assessment individuals for that tax year also fell, standing at £3.4 billion the same tax year.
Commenting on the figures, industry figures acknowledged that the consistency with previous years was positive but warned that the impact of the cost-of-living crisis as well as the ongoing impact of the pandemic would need to be watched. Also highlighted was the need to build awareness of Gift Aid and of other available tax reliefs to increase take up.
Charity Tax Group Chair, Richard Bray said:
“Overall, it is positive that the value of tax reliefs for charities and donors has remained largely consistent with previous years. However, the lasting impact of the pandemic and recent inflationary pressures on the scale and effectiveness of tax reliefs will have to be monitored closely in future years. Transitional Relief from 2024 will provide an important cushion for charities when income tax rates change and recognises the importance of Gift Aid to the sector.
“CTG continues to work closely with HMRC to ensure that Gift Aid claims are made correctly and efficiently. Communication with the sector is important where delays in paying claims arise as Gift Aid is very important for many charities’ cashflow.”
Alison Taylor, CEO of CAF Bank and Charity Services, Charities Aid Foundation also commented, calling for more investment in the Gift Aid process and other options to increase awareness and funds raised:
“With the cost-of-living crisis really starting to bite and rapidly increasing inflation, charities are having to do more with fewer resources. But every year, more than £500mn of Gift Aid tax relief is left unclaimed, meaning it doesn’t end up with the charities delivering frontline services. Investing in making the Gift Aid process easier overall could deliver desperately needed funds.
“Our latest UK Giving research shows that use of the Gift Aid scheme remained higher in 2021 than it was before the pandemic, particularly for sponsorship. While this is positive, there is clearly plenty of room for Gift Aid uptake to grow. So now is the time for charities to make every effort to remind donors of the vital importance of declaring Gift Aid, which effectively adds 25% to every donation. When an eligible taxpayer donates and forgets to tick the Gift Aid box, the charity misses out. It is not just down to the set-up of your donation page – staff and volunteers need to be properly trained on how to approach and encourage Gift Aid donations in person.
“Higher rate taxpayers should also be reminded that they could benefit from personal tax relief on their charitable donations. At CAF, we are also stressing to both employees and businesses the effectiveness of payroll giving options, such as Give As You Earn, where charitable donations are taken from pay before income tax is deducted.”
Also commenting, Jodie Barwick-Bell, tax partner at Evelyn Partners drew attention to the benefits of tax relief for individuals:
“Although philanthropy and charitable giving is rarely driven by tax reliefs, it is worth individuals considering this given that when individuals donate in the most tax efficient way, charities benefit too. The tax reliefs that are there benefit those on the highest incomes the most – Gift Aid represents a tax saving of 20p for every £1 donation by a 40% income taxpayer and 25p for every £1 by a 45% income taxpayer. It’s less well known that there can be a Capital Gains Tax saving on gifting assets such as quoted shares to charity. The other main tax relief is Inheritance Tax when charitable legacies are made on death – saving IHT on the value of the gift as well as reducing the IHT rate from 40% to 36% broadly when 10% of the estate is left to charity on death.”
“It’s interesting to note that this latest update shows that HMRC has increased scrutiny on individual donors claiming Gift Aid given it put on hold more claims than usual in March 2022 for extra risk assessment.
“Private individuals making significant donations should definitely consider their tax position beforehand as there are some potential pitfalls. For example, if you give to an organisation which is not a charity you are unlikely to get any tax relief but could actually have a tax charge by making the gift. Similarly, if you make a donation and claim Gift Aid but don’t have sufficient income to “frank” the donation then you could have an unexpected income tax charge.”