Warning issued by the Chartered Institute of Taxation (CIOT) on Gift Aid declarations

CIOT has issued a warning for anyone who will no longer be paying income tax following the increase in the personal allowance to check any ‘enduring’ Gift Aid declarations or risk receiving an unexpected tax bill.

Around 250,000 people with incomes between £9,440 and £10,000 no longer pay tax as the personal allowance has risen to £10,000. CIOT says that anyone in this category who has signed an ‘enduring’ Gift Aid declaration must check it has been cancelled and it is also encouraging charities to alert donors to this requirement.

Graham Batty, chairman of CIOT’s Charity Tax Working Group, said donors and charities could face ‘a nasty surprise’ when HMRC sends them a bill for the tax liability inadvertently run up on Gift Aid donations where the donor is not paying tax.

Mr Batty said: “Charities and community amateur sports clubs ought to make it clear regularly to anyone who has made an enduring declaration that if they make a donation for which they will not have paid enough tax to cover the amount to be reclaimed, they should withdraw their declaration so that they do not have to account for the tax on subsequent donations.

“In practice HMRC have sometimes been known to ask charities to make up the shortfall in a situation where a donor’s tax liability falls short of the tax attributable to their Gift Aid donations, so it is very much in the charity’s interest to do this.”

CIOT has warned that this issue will become particularly acute in April 2015 when new rules announced in this year’s Budget take effect and the first £5,000 of savings is income tax free. This will take even more people – many of them pensioners – out of income tax.

Robin Williamson, technical director of the CIOT’s Low Incomes Tax Reform Group, said that future savers in 2015/16 will not be liable for tax on any interest they receive if their total taxable income is less than £15,500.

Mr Williamson said: “However there could be a sting in the tail if they are making donations under Gift Aid. If they have made an enduring Gift Aid declaration the charity will assume the donation has come from someone paying the usual 20% income tax and claim this back from the Revenue under Gift Aid. However, if 0% tax has been paid on the money donated as ‘Gift Aid’, the donor might be faced with a bill for the difference in income tax to be paid back to HMRC.”

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Posted in Charity News.