The government has been urged to exempt charities from VAT as a way of helping them cope with the tough financial times.
The call came from Jasmine Whitbread, the chief executive of Save the Children. Charities could, she said, benefit from up to £500 million a year if the government were to exempt them from VAT.
Additional income could be generated by also amending the rules on Gift Aid, asking donors to opt out of the scheme rather than opt in.
At a time when charities need all the support they can get, there are some useful and tax-efficient ways to give, and choosing Gift Aid is one of them.
Gift Aid applies to any donation whether large or small, regular or one-off.
Donations that come out of your pocket have already been subject to income tax. Gift Aid enables charities to reclaim that tax at the basic rate (20 per cent as from 6 April 2008) from HM Revenue and Customs. From the charities’ point of view that amounts to 25 pence in every pound donated.
Better still, for every Gift Aid donation made between 6 April 2008 and 5 April 2011, HMRC will reimburse the charities an extra 3 pence in the pound. This is to smooth the transition from the old basic rate of 22 per cent to the new basic rate (20 per cent). For the next three years, charities will still receive the old Gift Aid rate of 28 pence in the pound.
However, there is an additional benefit for higher income tax rate donors. They are entitled to tax relief on their donations over and above that claimed by the charity. This is calculated as the difference between the higher rate of tax (40 per cent) and the lower rate (20 per cent).
You only have to complete a Gift Aid confirmation once for each charity, and it will remain in place for as long as you are a taxpayer.
Another good way of giving to charities is to use a Charities Aid Foundation (CAF) card. You can open an account with as little as £10 a month by direct debit or with a single payment of £100.
The account is in effect a ‘charity chequebook and debit card’ and can be used to make donations easily by phone, by post or online.
Tax is recovered at the basic rate and added to your account. Because CAF deduct 4 per cent for running most accounts, a £100 donation to CAF amounts to a £123.08 donation to charity.
