"Gift Aid Tax Charge"?
Discussion
Hi,
Question about Self Assessment Tax Returns .... Mrs 2BToo is completing her SA Tax Return and between us we have given quite a lot to charity in the period 2021-2022. My income has always been from a limited company which I run so has been controllable, her income has been from regular (NHS) employment but she has been a higher-rate tax payer so we have always put our joint charitable giving down as being from her in order to reduce the income tax burden.
This year we've noticed that on her (as yet unsubmitted) Tax Return it shows a "Gift Aid Tax Charge" of just north of £200. A bit of googling suggests that this arises because the income tax that can be reclaimed by the charities she has given to is greater than the amount of income tax she has paid, therefore HMRC want to claw back this difference from her. Is this correct?
If this is the case then it'll be cheaper for her not to declare any charitable giving on her Tax Return and save the £200. And we've re-run the calculation without any charitable giving and this is indeed the case. However is it legal for us to submit such a tax return?
(An alternative approach would be to declare some of the charitable giving as being from me, which would mean we could declare less giving from her and hence make this figure go away.)
Standing back from it, it seems more than a bit rich for HMRC to expect a taxpayer to cough up any shortfall between income tax paid by themselves and income tax reclaimed by a charity, but I guess it makes sense in a way. What happens if someone has an income of less than £12000 a year and hence doesn't pay any income tax, but makes a donation to a charity and declares gift-aid at the point of donation? Or what if they are not a higher-rate taxpayer and don't complete a tax return? (Which would be Mrs 2btoo's position if she didn't have a small income from a property which we let out.)
All suggestions, assistance and commiserations welcome.
Question about Self Assessment Tax Returns .... Mrs 2BToo is completing her SA Tax Return and between us we have given quite a lot to charity in the period 2021-2022. My income has always been from a limited company which I run so has been controllable, her income has been from regular (NHS) employment but she has been a higher-rate tax payer so we have always put our joint charitable giving down as being from her in order to reduce the income tax burden.
This year we've noticed that on her (as yet unsubmitted) Tax Return it shows a "Gift Aid Tax Charge" of just north of £200. A bit of googling suggests that this arises because the income tax that can be reclaimed by the charities she has given to is greater than the amount of income tax she has paid, therefore HMRC want to claw back this difference from her. Is this correct?
If this is the case then it'll be cheaper for her not to declare any charitable giving on her Tax Return and save the £200. And we've re-run the calculation without any charitable giving and this is indeed the case. However is it legal for us to submit such a tax return?
(An alternative approach would be to declare some of the charitable giving as being from me, which would mean we could declare less giving from her and hence make this figure go away.)
Standing back from it, it seems more than a bit rich for HMRC to expect a taxpayer to cough up any shortfall between income tax paid by themselves and income tax reclaimed by a charity, but I guess it makes sense in a way. What happens if someone has an income of less than £12000 a year and hence doesn't pay any income tax, but makes a donation to a charity and declares gift-aid at the point of donation? Or what if they are not a higher-rate taxpayer and don't complete a tax return? (Which would be Mrs 2btoo's position if she didn't have a small income from a property which we let out.)
All suggestions, assistance and commiserations welcome.
2Btoo said:
Standing back from it, it seems more than a bit rich for HMRC to expect a taxpayer to cough up any shortfall between income tax paid by themselves and income tax reclaimed by a charity...
Standing even further back, why should HMRC send money to a charity that they haven't received? It's nice that they do gift-aid at all.If gift aid reclaimed exceeds income tax paid I'd suggest she's giving too much money away...!
Firstly, well done on the donations.
However the gift aid should only be included on your partner's tax return to the extent it has been 'declared'/paid by her. Info is here:
https://www.gov.uk/government/publications/chariti...
3.10 and 3.32 are particularly relevant. Anything done to the contrary would mean she isn't completing her tax return correctly and could be open to HMRC correction, interest and fines.
Most people don't have these problems as they aren't as generous...
However the gift aid should only be included on your partner's tax return to the extent it has been 'declared'/paid by her. Info is here:
https://www.gov.uk/government/publications/chariti...
3.10 and 3.32 are particularly relevant. Anything done to the contrary would mean she isn't completing her tax return correctly and could be open to HMRC correction, interest and fines.
Most people don't have these problems as they aren't as generous...
2Btoo said:
If this is the case then it'll be cheaper for her not to declare any charitable giving on her Tax Return and save the £200. And we've re-run the calculation without any charitable giving and this is indeed the case. However is it legal for us to submit such a tax return?
This would be fraud.If she was a higher rate tax payer in 21-22, then her taxable income for the year was ‘at least’ £50,270 and with the standard personal allowance, she would have been due to pay tax on at least £37,700 of income… (with approx. £7,500 worth of income tax due).
Are you saying that her donations via Gift Aid were high enough to wipe-out her entire tax bill (i.e., charities claiming £7,700 from HMRC) and on that basis, they want to collect the £200 shortfall from your wife?
Are you saying that her donations via Gift Aid were high enough to wipe-out her entire tax bill (i.e., charities claiming £7,700 from HMRC) and on that basis, they want to collect the £200 shortfall from your wife?
Simpo Two said:
Standing even further back, why should HMRC send money to a charity that they haven't received? It's nice that they do gift-aid at all.
Fair point, but as I said it does make sense in a way. MaxFromage said:
Firstly, well done on the donations.
However the gift aid should only be included on your partner's tax return to the extent it has been 'declared'/paid by her. Info is here:
https://www.gov.uk/government/publications/chariti...
3.10 and 3.32 are particularly relevant. Anything done to the contrary would mean she isn't completing her tax return correctly and could be open to HMRC correction, interest and fines.
Most people don't have these problems as they aren't as generous...
Thanks Max, that's helpful. I'm pretty happy about the registration as gift-aid donors for each of us. However in practical terms, we have a joint bank account and we decide together what we are going to give money to. How much each comes from one or other of us would be impossible to determine, which is why we are both registered with the charities in question. However the gift aid should only be included on your partner's tax return to the extent it has been 'declared'/paid by her. Info is here:
https://www.gov.uk/government/publications/chariti...
3.10 and 3.32 are particularly relevant. Anything done to the contrary would mean she isn't completing her tax return correctly and could be open to HMRC correction, interest and fines.
Most people don't have these problems as they aren't as generous...
paulrockliffe said:
2Btoo said:
If this is the case then it'll be cheaper for her not to declare any charitable giving on her Tax Return and save the £200. And we've re-run the calculation without any charitable giving and this is indeed the case. However is it legal for us to submit such a tax return?
This would be fraud.Mogul said:
If she was a higher rate tax payer in 21-22, then her taxable income for the year was ‘at least’ £50,270 and with the standard personal allowance, she would have been due to pay tax on at least £37,700 of income… (with approx. £7,500 worth of income tax due).
Are you saying that her donations via Gift Aid were high enough to wipe-out her entire tax bill (i.e., charities claiming £7,700 from HMRC) and on that basis, they want to collect the £200 shortfall from your wife?
Not quite; I should have specified that she has been a higher rate tax payer in years gone by but not recently. However we are giving away almost as much as her income in this return (enough to take her well below her personal allowance), hence this situation. Are you saying that her donations via Gift Aid were high enough to wipe-out her entire tax bill (i.e., charities claiming £7,700 from HMRC) and on that basis, they want to collect the £200 shortfall from your wife?
Understood. Presumably there are reasons why she is still in Self Assessment?
It goes without saying that the onus is firmly on all of us as to declare ‘everything’…
If the donations have come from a joint bank account, you could argue that they were made on a 50:50 (or some other) basis?
The chances of HMRC requesting more info here must be quite low, but as with everything Self Assessment, a world of pain awaits those who are selected as you would be expected to have kept reasonable records to show where the money/your declared numbers came from.
It goes without saying that the onus is firmly on all of us as to declare ‘everything’…
If the donations have come from a joint bank account, you could argue that they were made on a 50:50 (or some other) basis?
The chances of HMRC requesting more info here must be quite low, but as with everything Self Assessment, a world of pain awaits those who are selected as you would be expected to have kept reasonable records to show where the money/your declared numbers came from.
Mr Whippy said:
I can’t help here but this is why I avoid gift aid.
What a minefield to add into your tax return… my local charity shop mentioned it recently wrt when giving them items to sell or something something something… jeez, how you’d administrate/monitor that!
It’s not normally a minefield - you get a decent tax reduction vs the amount given. What a minefield to add into your tax return… my local charity shop mentioned it recently wrt when giving them items to sell or something something something… jeez, how you’d administrate/monitor that!
The OP indicated a very unusual situation, suggesting that his wife was a higher tax payer and was wiping out all of her income tax, which would involve a hefty amount of giving.
But then he added that she isn’t a higher rate tax payer - so she could be earning only slightly above the basic rate threshold and a small amount of giving would trigger the extra tax demand.
It is necessarily complicated as it would be wide open to abuse if it wasn't and there are a few pitfalls (see link below).
However, if JustGiving (or similar) is your go-to platform, you can pull a simple statement off your account which summarises what you have given over a tax year...
For most, it will be a case of keeping records/receipts and keeping a running total going through the year makes sense - and realising that making a large donation to help a family member participate in charitable event will likely not qualify (if they get the benefit of a subsidised trip out of it - ask me how I know).
One little known benefit of how the relief is calculated/given is that for anyone who pays 'higher-rate' income on their earned/pension income AND has some higher-rate taxable dividend income (above the £2,000 allowance), your basic rate band for each is calculated separately and both will be *extended*.
Therefore, you can get 25% relief (125% of 20%) from your earned/pension income tax and another 31.25% (125% of 25%) on your dividend income tax (if you have paid enough of both).
i.e., a total of 56.25% of relief.
https://www.morganjones.co.uk/2022/05/gift-aid/
However, if JustGiving (or similar) is your go-to platform, you can pull a simple statement off your account which summarises what you have given over a tax year...
For most, it will be a case of keeping records/receipts and keeping a running total going through the year makes sense - and realising that making a large donation to help a family member participate in charitable event will likely not qualify (if they get the benefit of a subsidised trip out of it - ask me how I know).
One little known benefit of how the relief is calculated/given is that for anyone who pays 'higher-rate' income on their earned/pension income AND has some higher-rate taxable dividend income (above the £2,000 allowance), your basic rate band for each is calculated separately and both will be *extended*.
Therefore, you can get 25% relief (125% of 20%) from your earned/pension income tax and another 31.25% (125% of 25%) on your dividend income tax (if you have paid enough of both).
i.e., a total of 56.25% of relief.
https://www.morganjones.co.uk/2022/05/gift-aid/
Someone has already given a detailed answer but the simple answer is that a charity cannot claim back more tax than you have paid in the tax year of the donation. I think technically you are getting the tax relief yourself when you give a net donation but HMRC pay it over to the charity in your behalf.
My wife and I are both higher rate tax payers but she is self-employed and I work through a company. Our giving has for many years been done by the person with the higher income to get the best tax relief. Most is done direct from the company as gross payments (ie the charity cannot claim tax back), the donation gets full tax relief against corporation tax and the reduction in dividend then means no dividend tax to pay on that part of “income”.
We have a joint account too so when starting new direct debits to charities we have always specified which of us is making the donation. And then I have always viewed that as fixed - ie, no going back and saying last year’s contributions were by the other person. I did change it once with one charity and specified that instead of me it was from my wife from a particular point.
The charities probably don’t care who is making the donation so they might write one of your names down when its actually the other donating (or both of you), but it can as you have discovered cause problems.
My wife and I are both higher rate tax payers but she is self-employed and I work through a company. Our giving has for many years been done by the person with the higher income to get the best tax relief. Most is done direct from the company as gross payments (ie the charity cannot claim tax back), the donation gets full tax relief against corporation tax and the reduction in dividend then means no dividend tax to pay on that part of “income”.
We have a joint account too so when starting new direct debits to charities we have always specified which of us is making the donation. And then I have always viewed that as fixed - ie, no going back and saying last year’s contributions were by the other person. I did change it once with one charity and specified that instead of me it was from my wife from a particular point.
The charities probably don’t care who is making the donation so they might write one of your names down when its actually the other donating (or both of you), but it can as you have discovered cause problems.
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