Introduction to gift aid
The gift aid scheme1 is designed to reduce the incidence of taxation on gifts to charity both by providing tax relief to the donor and by enabling the charity to top up the gift by reclaiming tax from HMRC.
Under the scheme, the amount of a 'qualifying donation' is treated as a net amount from which basic rate income tax has been deducted at source. Higher and additional rate relief is then given by extension of the basic rate and higher rate bands by reference to the gross equivalent of the amount donated. Provision is made for cases where the donor pays tax other than at the main UK rates, for example at the Scottish or Welsh rates.
Basic rate tax relief is dependent on the donor having sufficient tax liability for the year to cover the amount treated as deducted at source. The donor may elect for a qualifying donation to be relieved as if it had been made in the preceding tax year.
Relief for donations under the gift aid scheme may be denied under the 'tainted donations' rules at E1.813A.
For more on the treatment of gift aid donations from the point of view of the recipient charity, see B5.823.
See A7.405 for schemes involving gift aid that HMRC has included in its list of 'spotlight' avoidance schemes. See also Re the Cup Trust; Charity Commission for England and Wales v Mountstar (PTC) Ltd and others2 in which donations