The Gift Aid scheme allows you to give money to charities so that the charity can claim back the tax you have paid on this money.
Gift Aid donations are treated as if they are paid from your income after the basic rate tax of 20 per cent has been deducted. This allows you to boost the amount of money donated to a charity without costing you anything.
This means that for every £1 you give to a charity using Gift Aid the charity can reclaim an extra 25p from HM Revenue & Customs (HMRC).
For basic rate taxpayers, this is quite straightforward, but for higher or additional rate taxpayers it means that they could be missing out on a useful relief, as they pay income tax at 40 or 45 per cent instead of 20 per cent.
However, what is not commonly known is that if you are a higher or additional rate taxpayer, you can reclaim the difference between the rate of tax claimed by the charity on your donation and the higher rate of tax you actually pay from HMRC to reduce your overall tax bill.
Taxpayers have four years to submit a claim for tax ‘overpayment relief’ to HMRC after the end of the tax year the claim relates to. This means that you may still be able to recover unclaimed relief from Gift Aid from previous years.
It is advised that taxpayers seek professional assistance when calculating and recovering tax relief before the end of the tax year in April.