Share this content

Taxed on Gift Aid Payments?

Taxed on Gift Aid Payments?

Didn't find your answer?

Hello all,

Help please!!

My client has made £3,662 in charitable donations in 2014/15.

She is self employed (and had a small amount of employment income) so her taxable income was £3,166. Therefore tax liability of £633.

On her tax return I have included her charitable donations and it has therefore grossed them up to increase her basic rate band, but also charged her tax. I am guessing this is because she has not paid enough tax to qualify for full gift aid, but I can not understand the workings!! Please can some clarify the below:

Copy of her tax calculation:

Taxable income £3,166 - tax £633.20

Tax on gift payments £4,577 - tax £915.00

Deducted at source £220.00

Tax Liability £695.00

This doesn't even add up! What am I missing here?!

Any help would be much appreciated.

Thank you:)

Replies (23)

Please login or register to join the discussion.

By Tim Vane
18th Jan 2016 11:27

When she made the Gift Aid declaration she would have ticked a box that stated she paid enough tax to cover the tax relief claimed by the charity. She hasn't. So she owes the tax that the charity has reclaimed.

But really, why would you not know this if you are holding yourself out to be competent enough to complete another person's tax return? You really should be able to compute the tax liability without relying on the software.

Thanks (3)
Replying to thevaliant:
Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
18th Jan 2016 11:46

No need to be sanctimonious

Tim Vane wrote:

But really, why would you not know this if you are holding yourself out to be competent enough to complete another person's tax return? You really should be able to compute the tax liability without relying on the software.

Because this is an unusual situation and they may not have seen it before? I've been in the business for 12 years and have never seen it, and would have been equally confused (though the explanation makes perfect sense).

No wonder people are scared to post technical questions on here when other members leap down their throats at the slightest hint of not knowing everything in the world.

Thanks (9)
By ShirleyM
18th Jan 2016 11:27

It does add up

Gift Aid is considered to be net pay (after tax), therefore she would have needed to earn £4,577 before tax, in order to pay £3,662 in net pay to Gift Aid. 

£4,577 gross income would result in a tax liability of £915. As she has no tax liability to offset the Gift Aid tax, then she has to pay the tax (less the tax deducted at source). The charity will receive the £915 tax that your client has paid (or is due to pay).

Thanks (3)
RLI
By lionofludesch
18th Jan 2016 11:45

Advice for low paid people

Don't make gifts under Gift Aid.

Shirley's analysis is spot on. 

Thanks (3)
By SteveHa
18th Jan 2016 11:53

That's worrying

Although you don't come across underpaid gift aid on a daily basis, it's prerequisite that any adviser understand the concept and the calculation, otherwise how would you advise your client in year to avoid an unexpected tax liability, if you yourself did not know that the liability was likely?

Thanks (2)
Replying to VB2021:
Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
18th Jan 2016 12:04

.

SteLacca wrote:

Although you don't come across underpaid gift aid on a daily basis, it's prerequisite that any adviser understand the concept and the calculation, otherwise how would you advise your client in year to avoid an unexpected tax liability, if you yourself did not know that the liability was likely?

Are you telling me that everything you ever learned in college is always refreshed every year in your CPD and there is NOTHING that you have forgotten? At all? Really? And you never have an off day?

This is why we ask a colleague, or check in our books/online resources if something like this is thrown up, just like the OP did. For sole practitioners, forums such as this are invaluable and we should all be able to ask stuff without fear of ridicule or insinuations of incompetence.

Thanks (5)
Replying to mbee1:
By SteveHa
18th Jan 2016 12:12

Not what I said

Monsoon wrote:

Are you telling me that everything you ever learned in college is always refreshed every year in your CPD and there is NOTHING that you have forgotten? At all? Really? And you never have an off day?

This is why we ask a colleague, or check in our books/online resources if something like this is thrown up, just like the OP did. For sole practitioners, forums such as this are invaluable and we should all be able to ask stuff without fear of ridicule or insinuations of incompetence.

No, that's not what I'm saying. If a client contacts me with a complex query in year, I will research before providing a response.

Your post suggests that if a low earning client had contacted you in year and said "I plan on making a donation using gift aid", you would have simply assumed no problems and advised accordingly. This is fundamentally different than not knowing every single tax law, but is rather being unaware that there is a law, whoch would ultimately cost your client money based on flawed advice given in ignorance.

The interaction with gift aid is a fundamental part of the tax calculation, and the requirement to have sufficient tax in charge is a fundamental aspect of gift aid. Neither of these is a complex or unusual situation.

Thanks (0)
Replying to ireallyshouldknowthisbut:
Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
18th Jan 2016 12:33

.

SteLacca wrote:

Monsoon wrote:

Are you telling me that everything you ever learned in college is always refreshed every year in your CPD and there is NOTHING that you have forgotten? At all? Really? And you never have an off day?

This is why we ask a colleague, or check in our books/online resources if something like this is thrown up, just like the OP did. For sole practitioners, forums such as this are invaluable and we should all be able to ask stuff without fear of ridicule or insinuations of incompetence.

No, that's not what I'm saying. If a client contacts me with a complex query in year, I will research before providing a response.

Your post suggests that if a low earning client had contacted you in year and said "I plan on making a donation using gift aid", you would have simply assumed no problems and advised accordingly. This is fundamentally different than not knowing every single tax law, but is rather being unaware that there is a law, whoch would ultimately cost your client money based on flawed advice given in ignorance.

The interaction with gift aid is a fundamental part of the tax calculation, and the requirement to have sufficient tax in charge is a fundamental aspect of gift aid. Neither of these is a complex or unusual situation.

That's not what I said either :)

I understand gift aid. What I said is the original post, if the tax calulation had thrown that tax bill up I would also have been initially confused, simply due to not having come across it before/for ages.

Of course I researtch stuff before advising a client..Don't jump to conclusions.

My whole point was there is no need for being rude to people for asking advice - there is merit in trying to get things right, after all!

 

Thanks (0)
By birdman
18th Jan 2016 12:02

I assume...

the OP has checked that a Gift Aid form has been completed for each charity? Charitable Donations does not always equal payments under Gift Aid.

Thanks (1)
RLI
By lionofludesch
18th Jan 2016 12:03

Once

I've only seen it once.

The client was a bit surprised but he accepted it for what it was.

The tax bill was only a few quid.

Thanks (1)
By Tim Vane
18th Jan 2016 12:21

I am sorry Monsoon, something you don't deal with often is one thing, but not being able to work it out from first principles means that you don't understand the first principles. Yes we sometimes come across unusual stuff and want to confirm our understanding of the situation, but posting in a panic because we clearly don't have the first clue how Gift Aid works is not at all the same. Given the lack of understanding in the question, one has to assume that the OP does not understand the basic calculation of an extension to the basic rate band for Gift Aid, or they would not have thought the numbers didn't add up. A basic rate extension is very common indeed, and I would expect anybody doing returns to come across it regularly.

Thanks (1)
Replying to BudgetB:
Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
18th Jan 2016 12:40

.

Tim Vane wrote:

I am sorry Monsoon, something you don't deal with often is one thing, but not being able to work it out from first principles means that you don't understand the first principles. Yes we sometimes come across unusual stuff and want to confirm our understanding of the situation, but posting in a panic because we clearly don't have the first clue how Gift Aid works is not at all the same. Given the lack of understanding in the question, one has to assume that the OP does not understand the basic calculation of an extension to the basic rate band for Gift Aid, or they would not have thought the numbers didn't add up. A basic rate extension is very common indeed, and I would expect anybody doing returns to come across it regularly.

 

Your comment has merit (I could argue but I would rather go read a book to my son). I just get p**sed off at the santcimonious comments on here, it costs nothing to be nice, or to assume someone is having a tricky day rather than assuming they are ignorant. Even if they *are* ignorant, it's easier to teach with kindness than a stick. Have a lovely rest of your day, I'm out.

 

Thanks (0)
Replying to ruthlo:
By Tim Vane
19th Jan 2016 12:17

@Monsoon

Monsoon wrote:

I just get p**sed off at the santcimonious comments on here, it costs nothing to be nice, or to assume someone is having a tricky day rather than assuming they are ignorant. Even if they *are* ignorant, it's easier to teach with kindness than a stick.

Fair point, well made. I hope your son enjoyed his story.

Thanks (0)
avatar
By ringi
18th Jan 2016 12:28

This can hit people with companies…..

As div payments have such low tax credits attached to them.   Therefore all accountants should be warning their clients about this and to consider having their company make the donations instead.   (May be worse under the new div tax rules...)

Thanks (0)
avatar
By ringi
18th Jan 2016 12:34

Use a back dated giftaid

Firstly consider if the gift aid can be backdated (carry back) to the preceding tax year, sorry can’t remember the rules on this.

Gong forward one option is to after the end of the tax year, make a single gift aid payment (maybe using the Charities Aid Foundation) to the maximal amount that the tax paid would cover and use the rules that allow back dating of a gift aid payment.

Thanks (0)
Replying to Paul Crowley:
By Paul D Utherone
18th Jan 2016 12:43

Should work

ringi wrote:

Firstly consider if the gift aid can be backdated (carry back) to the preceding tax year, sorry can’t remember the rules on this.

so long as the return has not already been submitted to HMRC, in which case it's to late & you cannot elect back now with an amended return
Thanks (0)
avatar
By vince8
18th Jan 2016 12:55

retainable charges

and how to compute EEI, GSI and NSI . What memories!!

Thanks (0)
avatar
By Murphy2014
18th Jan 2016 13:06

Thanks, kinda.

Thank you everyone for your feedback. It is much appreciated.

I am a little shocked by some of the comments, when people clearly do not know anything about me, who I am where I work etc.

 

If it will make you feel better 'Tim Vane' and 'SteLacca' I am currently at college studying for my exams. I am preparing a client's tax return and both my manager and partner are out of the office. A fellow student advised me this is a great site to see the different types of responses you get, something I can then go back to my manager with.

 

Thank you for the support 'Monsoon; it's nice to see some people use this forum for what it actually is and not just to insult the members.

Not sure I'll be posting on here anymore.

Thanks (0)
By SteveHa
18th Jan 2016 13:14

To be honest, my comments weren't directed at you, but more at the comments from someone experienced who apparently didn't know this.

If you are still studying, then it's understandable that you wouldn't know. However, even if the management chain is out of the office, I would urge you to wait until they return before presenting your work to the taxpayer.

Thanks (1)
avatar
By Anne Robinson
18th Jan 2016 13:15

Not so rare
I see this quite a lot especially those whose SE income varies a lot They usually have ticked one of those forms which states that every donation since ..... is to be treated as paid under gift aid.

They usually want continue with their donation to church or whatever and if the tax paid doesn't cover it then they pay the extra

I'm sort of surprised others have never come across this - but perhaps it is a case of a different client base

Thanks (2)
By Tim Vane
19th Jan 2016 12:20

@OP, well you kept saying "my

@OP, well you kept saying "my client" and perhaps you could have asked your supervisor before posting a question on a public forum, but that aside, even a student should have a better grasp of the basics after two years of study.

Thanks (1)
avatar
By lflegg
27th Mar 2020 01:56

Literally just created an account to suggest that everyone taking time out of their supposedly busy lives to criticise the OP should maybe get back to helping their clients.

Or doing something more fulfilling with your free time that going back and forth arguing someone into agreeing with you that they're not up to your standards.

To the OP: Thanks. I found your post useful, so glad you asked. And thanks to those who responded with the intention of actually being useful.

Take care all. I won't see any replies to this and don't have time to spend on this forum article but wishing you all the best.

Thanks (2)
Replying to lflegg:
By SteveHa
28th Mar 2020 09:20

Kudos for reviving a 4 year old (and out of date in some respects) thread.

Thanks (0)
Share this content