The Gift Aid scheme is available to all UK taxpayers, but in order to sign up to the Gift Aid scheme when you make a donation, you must be paying UK income tax.

There are clear advantages for charities if you make your donation in this way. The charity or Community Amateur Sports Clubs (CASC) concerned can take your donation and, provided all the qualifying conditions are met, can reclaim the basic rate tax, which means that the value of your donation increases by 25p for every pound donated to charity.

Higher rate and additional rate taxpayers can also claim additional income tax relief. This is based on the difference between the basic rate and their highest rate of tax.

For example:

If a taxpayer donates £500 to charity, the total value of the donation to the charity is £625; the charity claim the £125 difference from HMRC. The taxpayer can also claim additional tax back of:

• £125 if they pay tax at 40% (£625 × 20%),
• £156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%).

Planning warning. One of the conditions for an effective claim for Gift Aid is that you must have paid enough tax in the relevant tax year to cover the tax credit that the charity can claim from HMRC. The rules state that your donations will qualify for tax relief as long as they are not more than 4 times what you have paid in tax in that tax year. If you have claimed more tax relief than you are entitled to you will need to notify the charity and pay back any excess tax relief.