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6. Payments to charity under the Gift Aid System and Personal Pension Contributions The gift aid system is a tax e
ffi
cient way by which to give money to charity and is available to
individual taxpayers.
6.1. Basic rate taxpayers Payments to charity under gift aid are treated as being paid net of the basic rate of tax (20%). For a
basic rate taxpayer tax relief at the basic rate is automatically obtained as payments are made to the
charity net of basic rate relief being given at source.
For example: to give a charity £100 the taxpayer need only make a gift aid payment of £80. The charity
will then be able to claim back from HMRC the basic rate tax of £20 thereon collected by HMRC from
the taxpayer’s income.
Therefore, because the tax relief is automatic, the donation is NOT shown as a deduction in the
calculation of Taxable Income.
A question may tell you what is the amount paid, by the taxpayer, for example £80 and you must gross
up this amount (80 x 100/80) to compute the gross figure, or instead may state amount paid £100
(gross) and give you the already grossed up figure for you to use - read the information in the question
carefully - as ever!!
6.2. Higher rate tax payer For higher rate taxpayers, 40% tax relief is given as follows:
(a)
20% at source (as noted above), and,
(b)
20% through the income tax computation, obtained by extending the basic rate band by the
gross donation (so that more income is taxed at 20% and less at 40%).
6.3. Additional rate tax payer For additional rate taxpayers, 45% tax relief is given as follows:
(a)
20% at source (as noted above) and,
(b)
25% through the income tax computation by extending both the basic rate band and higher
rate band limits by the gross donation (so that more income is taxed at 20% instead of 40%
and 40% instead of 45%).
