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Will Tax Credits pay your Gift Aid?

This is not a question

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The answer is no, but they’ll go a good way towards it. This time each year I’ll be writing tax planning for clients and I’m constantly surprised at the increasing complexity of the system- which seems to have exploded in the last 5-6 years (wasn’t OTS Est’d 2010?!). 

Take this example.

In general a client with low earnings and paying no Income Tax shouldn’t be making charitable donations via Gift Aid (our worse scenario is to present a surprise tax bill). That is unless they’re claiming Tax Credits. 

Donation net £80, gross £100

Tax payable (presuming nil IT bill) £20

Less: Increase in Tax Credits for donation via GA £41 (TC withdrawal rate of 41p per £1)

Cost of donation via GA therefore £59. 

vs. Cost of donation outside GA £80 or even £100 if you want charity to be even.

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