What is Gift Aid and how does it work for Corporations?

Gift Aid is a UK government scheme that allows for tax relief on donations to UK registered charities. For individuals, the scheme allows the charity to receive an extra 20p for every £1 donated. When an individual donates money to a UK registered charity, it can claim back the basic rate of income tax on the donation. This is done by completing a Gift Aid declaration form and sending it to the charity which then allows the charity to claim back the 20% tax paid by the taxpayer. If the taxpayer is a higher rate or additional rate taxpayer, he can get relief for the additional tax paid above the 20% by doing a tax return or by calling HMRC and requesting that they change their tax code. This additional tax relief goes to the taxpayer instead of the charity. 

Gift Aid for Corporations

Gift Aid for corporations is different from Gift Aid for individuals in terms of eligibility and benefits. As seen above, individuals who are UK taxpayers can use Gift Aid to increase the value of their donations to charity. For corporations, there is no such thing and the whole tax relief goes to the corporation that gives money to charity. 

To be eligible for Gift Aid, corporations must be UK taxpayers and must make a donation to a charity that is registered with HM Revenue and Customs (HMRC). The donation must be made without any conditions attached, and the charity must not provide any significant benefit to the corporation in return for the donation.

There is no limit on the amount that can be given by a company to a charity under gift aid, as long as the company has enough taxable profits to cover the donation and the charity is recognised by HMRC. In particular a donation cannot create a loss for the business. However, as mentioned above, there are some limits on the value of benefits that the company can receive from the charity in return for the donation. The value of the benefits must not exceed 5% of the donation, up to a maximum of £2,500 per donation. Additionally, the total benefit that can be received by a close company or connected persons from the same charity in the same tax year is £250. If benefits exceed these values, the payments will not qualify for relief under gift aid.