If you ‘do a lot for charidee', force the tax system to help and you can ‘do a liddle more.' This article tells you how to give 80% more to charity than you pay.
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Any charity registered with the Charity Commission, or the Office of the Scottish Charity Regulator (small charities and ones based in Northern Ireland register with HM Revenue & Customs instead for charitable tax exemption) can take advantage of schemes allowing them to reclaim your tax. It's easy to find out as it'll have ‘registered charity' on its literature, plus organisations like chuches, universities, amature sports clubs and some schools and hospitals automatically have charitable status.
Maximise your giving, Minimise your cost
The simplest way to give is via ‘gift aid'. This allows charities to claw back your tax from the Inland Revenue on either one-off or regular donations. There's no minimum contribution so even on a pound the tax is reclaimable.
How does this benefit you and the charity?
Charities reclaim the tax at the basic 22% rate, which due to the way the numbers work means they get around 28% more than you donate (e.g. you give £50, the charity gets £64.10).
Payroll Giving
Another easy solution is to give via ‘payroll giving' where you donate a regular amount directly from your salary, through your employer's payroll. The donation is given before any tax is taken off, which means the charity automatically receives both a basic rate taxpayer's and all of a higher rate taxpayer's tax.
The only problem is employers must have a scheme in place; you can't just do it on your own. Ask your finance department if your firm runs a scheme. If not it's worth trying to encourage it. This is a simple process run through the automated payroll. Unfortunately those who are self-employed sole traders can't access payroll giving.Feed the starving at no cost to you
There is a way to help at no cost. Sites like thehungersite.com work by sponsorship. You go to the site, click the link, and the sponsors pay for food to be donated to someone who is starving. There are other similar sites which donate to various causes. Read Feed The Starving At No Cost To You.
Get a charity chequebook
One final tip. The Charities Aid Foundation runs a special Charity Account. You pay money in directly through either Gift Aid or Payroll giving, it automatically collects the tax and adds it to your account.
After this you can use its special card or cheque-book to donate from this account to a charity of your choice. Its big advantage is you can donate tax-efficiently on impulse, even putting the special cheques in collection tins to ensure the charity gains the maximum amount.
Tax breaks can make a real difference to the size of donations. To give £20 using the gift aid scheme a basic rate taxpayer would only need to give £15.60 and a higher rate taxpayer just £12 (assuming the extra tax is donated to charity too). Overall this means to give a charity £240 in a year, it would only cost a higher rate taxpayer £144.
Give more than you pay: The cost of donating £20 a month to charity | ||||||
Monthly | Annually | |||||
Basic Rate Taxpayer Pays | Higher Rate Taxpayer Pays | Charity Receives | Basic Rate Taxpayer Pays | Higher Rate Taxpayer Pays | Charity Receives | |
Gift Aid | £15.60 | £12 | £20 (1) | £187 | £144 | £240 |
(1) Assumes higher rate taxpayer donates all tax gains to the charity | ||||||
Donate your old shares
Donating shares to charity is a less obvious way of giving but there are tax benefits here too. Sign over your shares to charity and there's no capital gains tax and you can offset their value (on the day you transfer) against income tax.
There's a number of ways this can be beneficial:
Perhaps you've a shareholding so small it's not worth selling. Or it can be a useful way to give if you've used up your capital gains tax limit (you can make up to £7,900 of one-off gains a year before tax is applicable), you want to offload some shares and the income tax write off means you get a double hit tax benefit.
The transfer form itself works as a record of the transfer and the responsibility of selling the shares moves to the charity, which can wait until it builds up a bigger portfolio to cut down stockbroking costs.
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