Gift aid definition

View the related Tax Guidance about Gift aid

Gifting cash and assets to charity

Gifting cash and assets to charityThere are a number of tax reliefs available for gifts to charities. This note sets out the UK tax treatment of gifts to organisations established in part of the UK with purposes regarded as charitable under the law of England and Wales. See the Foreign charitable trusts and other foreign charities guidance note for information on gifts to other entities of a charitable nature.Gift aidGift aid is a way for charities or community amateur sports clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate of tax paid by the donor.See the Gifts of cash guidance note in the Personal Tax module for details of the conditions for a qualifying donation and the tax relief available to the individual.Record keepingA charity must maintain evidence to satisfy HMRC that a payment has been made and by whom. For full details of the records to be kept by a charity and the format in which the records may be stored, see the HMRC website.Planning issues for charities Charities should encourage all donors to make use of gift aid. If a charity receives a simple cash gift it should consider contacting the donor to ask whether it would be appropriate to send him a gift aid declaration. The charity can bank the donation in the meantime.Payroll givingPayroll giving (often called 'give as you earn') is a way for employees to make regular payments to charity directly from their salary. People who

Interest in possession trusts ― income tax

Interest in possession trusts ― income taxIntroductionThis guidance note explains how to calculate the income tax liability on the income of an interest in possession trust. It also covers the general principles of income tax that apply to all trusts and identifies the features specific to an interest in possession trust.Trustees together are treated as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). In order to calculate the income tax liability for any trust, you first have to determine what type of trust it is. It is essential, when dealing with a trust for the first time, to read the trust instrument. As explained in the Taxation of trusts ― introduction guidance note, the income tax treatment will fall into one of two categories:•standard rate tax (bare trusts and all interests in possession), and•trust rate tax (discretionary and accumulation trusts)The nature of a discretionary interest and the income tax treatment is detailed in the Discretionary trusts ― income tax guidance note. Higher trust rates of tax apply to trustees’ accumulated or discretionary income.The income tax treatment of bare trusts is described in the Bare trusts ― income tax and CGT guidance note.An interest in possession is characterised by a beneficiary’s right to the income of a trust as it arises. The income belongs to the beneficiary, and the trustees have no authority to withhold it except to use

Introduction to capital gains tax

Introduction to capital gains taxIn general terms, a charge to capital gains tax arises when a chargeable person makes a chargeable disposal of a chargeable asset. The disposal may produce a profit (known as a gain) or a loss.See Checklist ― calculation of capital gains and losses for issues to consider when reporting client gains and losses.Chargeable personA chargeable person could be an individual, a trustee, a personal representative or a company, although companies are subject to corporation tax on chargeable gains not capital gains tax. For further discussion, see CG10700 and Simon’s Taxes C1.102. Exempt persons include, amongst others, charities (so long as the gain is applicable and applied for charitable purposes) and local authorities. See CG10760.Generally, if an individual is resident in the UK in the tax year they are chargeable to tax on capital gains arising in that tax year. See ‘Overseas aspects’ below for a discussion on the taxation of gains on non-resident individuals and those accessing the remittance basis of assessment. Chargeable disposalThe most common way for a person to dispose of an asset is to sell it to another person. However, a gift or an exchange also constitutes a disposal for capital gains tax purposes. There are provisions within the capital gains tax legislation that provide for the loss or destruction of an asset also to be treated as a disposal. For a list of other deemed disposals, see CG12703. Chargeable assetsAssets are

Cap on unlimited income tax reliefs

Cap on unlimited income tax reliefsIntroductionThe cap on unlimited income tax reliefs applies from 6 April 2013. The cap only applies where the person claims more than £50,000 in reliefs in any one tax year. It acts to limit the relief for the tax year to the greater of:•£50,000•25% of the ‘adjusted total income’ (see below)ITA 2007, s 24A(1)–(5)This guidance note discusses the reliefs which are and are not subject to the cap as well as the operation of the cap. For more on the impact of the cap on claims over multiple tax years, see the Cap on unlimited income tax reliefs ― claims over more than one tax year guidance note.Reliefs included in the capIn terms of the policy rationale as to which reliefs were to be included in the cap, the following general rules were applied:•it needed to be a relief against general income (ie a Step 2 deduction for the purposes of ITA 2007, s 23, see the Proforma income tax calculation guidance note), and•the relief must not have been capped prior to the introduction of these rulesHowever, interested parties successfully lobbied to ensure that the income tax relief available for losses on EIS / SEIS shares to be excluded from the cap. Similarly, losses on qualifying investments in social enterprises are also excluded from the cap. These losses continue to be fully relievable against income under ITA 2007, s 131 provided the conditions for that relief are met. This is

Trading subsidiaries of charities

Trading subsidiaries of charitiesIntroduction to trading subsidiariesA 'trading subsidiary' is a company owned and controlled by a charity, or occasionally several charities, which has been incorporated in order to carry on a trade or business which:•the charity cannot itself carry on due to constitutional restrictions or concerns about business risk and potential liabilities, and / or•the charity cannot carry on in a tax-efficient mannerA trading subsidiary is usually set up to generate income for the charity or charities, as the subsidiary does not have the restrictions to its trading activities that charities have.A trading subsidiary can be used to:•carry out non-primary purposes trading beyond the limits of the small scale exemption (see the Tax treatment of the charity guidance note)•protect a charity’s assets from the risks of tradingIf the subsidiary company gives all or part of its profits to the charity (in place of a dividend) then it will not pay tax on those profits, see the Gifting cash and assets to charity guidance note.Trading subsidiaries are not cheap to run and generate additional bureaucracy and complexity and so should not be created without proper consideration of their merits and disadvantages.Setting up a trading subsidiaryIf a charity wants to set up a trading subsidiary it will need to:•create a company•provide it with trading capital (see below)•consider how the charity's assets can be made available to the company (see below)•ensure that the company gives profits, which would otherwise be taxed, to the

Foreign charitable trusts and other foreign charities

Foreign charitable trusts and other foreign charitiesIntroduction to foreign charitiesThis guidance note sets out the UK tax treatment of non-UK trusts and other entities of a charitable nature, and of gifts to such entities.For convenience, the term 'foreign charity' has been used throughout the note to mean any entity of a charitable nature which is not subject to the jurisdiction of the UK courts and cannot, therefore, qualify as a 'charity' for the purposes of the charity law of any part of the UK. The question of whether an entity of a charitable nature is subject to the jurisdiction of the English courts is discussed in the What is a charity? guidance note.The following note is concerned only with entities that do not qualify as 'charities' under these rules, because they are not subject to the jurisdiction of the courts of any part of the UK.As discussed below, it is necessary to distinguish between entities of a charitable nature established in member states of the European Economic Area except Liechtenstein (for convenience referred to as 'EEA charities' in this note) and foreign charities established outside the EEA. Broadly speaking gifts to EEA charities qualify for UK tax relief, whereas gifts to non-EEA foreign charities do not.The EEA comprises the Member States of the EU plus Iceland, Norway and Liechtenstein. At present, entities of a charitable nature established in these countries are effectively recognised as charities for UK tax purposes.No attempt has been made here to discuss the

Taxation of savings income

Taxation of savings incomeSavings income includes interest, profits from deeply discounted securities, accrued income profits and chargeable event gains.Savings income is taxed after non-savings income but before dividend income. There are four possible rates of tax applying to savings income from 2015/16 onwards: 0%; 20%; 40%; or 45%.Note that the Scottish and Welsh income tax rates only apply to the non-savings non-dividend income (commonly referred to in practice as non-savings income) of Scottish or Welsh taxpayers. As far as the savings income of Scottish and Welsh taxpayers is concerned, it is the UK tax bands and rates that apply. For the definition of Scottish and Welsh taxpayers, see the Proforma income tax calculation guidance note.When is savings income taxable?Whether savings income is taxable in the UK depends on the circumstances of the individual and whether the income is paid by a UK resident or non-resident payer.An individual who is resident and domiciled or deemed domiciled in the UK is taxable on his worldwide income (and gains) in the tax year in which these are received and should declare these on his tax return. See the Residence ― overview and Domicile guidance notes for detail on these terms.Individuals who are not domiciled or deemed domiciled in the UK are eligible to access the remittance basis of assessment. The effect of the remittance basis is that the individual is only taxable on his foreign income to the extent that these are remitted (brought) to the UK. The remittance basis only affects

Childcare and workplace nurseries

Childcare and workplace nurseriesIntroductionA number of employers will provide workplace nursery facilities for their employees. The provision of childcare benefits affords some potentially large tax savings as it allows all or part of the childcare costs to be funded by the employer free of income tax and NIC. Broadly speaking, the legislation covers two forms of exemption: childcare provided at the workplace and other childcare.The various exemptions are found at ITEPA 2003, s 318 onwards.From 6 April 2017, there have been significant changes to the operation of tax efficient childcare. While many of the historic arrangements continue, there are transitional arrangements for childcare vouchers which will close to new entrants on 4 October 2018. It is worth noting that the administration of many of the tax efficient schemes will be through public agencies rather than through employers.Workplace nurseriesWhere specific criteria are met, the provision of workplace nursery facilities are exempt from tax, NIC and reporting requirements. If these criteria are not met, then a taxable benefit may arise. The requirements for the exemption are found at ITEPA 2003, s 318 and relate to:•the child•the premises on which care is provided and the registration requirements•the person or persons who make the premises available•the extent to which the care is available to the employer’s employeesThe child must either be:•a child or stepchild of the employee, maintained at the employee’s expense•living with the employee•under the parental responsibility of the employee (ie have the same legal

Gifts of cash to charity

Gifts of cash to charityIndividuals receive income tax relief on donations they make to charities. There are three ways in which an individual can obtain income tax relief on cash donations to charity: by gift aid (also known as gift aid relief), by direct deduction from salary under payroll giving and by the retail gift aid scheme.For details of income tax relief available for non-cash donations, see the Gifts of quoted shares and land to charity guidance note.Note that donations to charity are not included in the cap on unlimited income tax reliefs. See the Cap on unlimited income tax reliefs guidance note for more information.Meaning of ‘charity’Donations from 6 April 2010The definition of charity was significantly altered by FA 2010, extending UK income tax reliefs to charities based overseas in ‘relevant territories’ (ie countries in the European Economic Area). The EEA is comprised of the EU Member States plus Norway, Iceland and Liechtenstein.The post-5 April 2010 definition of a charity is a body of persons or a trust which:•is established for a charitable purpose only•meets the jurisdictional condition (ie under the jurisdiction of the UK courts or the courts in a relevant territory)•meets the registration condition (ie has complied with any requirement to be included in the register of charities kept under Charities Act 2011, s 30 or with a similar requirement to be included in an equivalent register in a relevant territory)•meets the management condition (ie

Short tax returns

Short tax returnsThe short tax return was introduced in April 2005 with the aim of reducing the compliance burden for taxpayers with simple tax affairs.The short tax return (form SA200) is a four-page document that covers the most common sources of income (employment, self-employment, pensions, investment income, UK property) as well as common reliefs (pension contributions, gift aid, personal allowances). Capital gains and losses are reported on the usual capital gains summary supplementary pages and submitted with the short tax return. There is no facility on the short return to calculate the tax due, although a simple guide is included for taxpayers who want to make a rough calculation of the tax due.It is not possible for a taxpayer (or the agent) to self-select a short tax return. This form is not available online, nor can it be ordered from the helpline. Therefore, it is not possible to provide a link to the short return within this guidance note. However, the short tax return guide is available online.Who might receive a short tax return?HMRC will issue the short return to certain taxpayers based on the entries in the previous tax return. Examples of the type of taxpayer who may be issued with a short return include employees (who are not directors) with taxable benefits, self-employed traders with turnover of less than the annual VAT registration threshold and pensioners who have pensions and straightforward investment income.However, receiving a short tax return does not necessarily mean that a main tax return