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Hello.
I’ve watched your lectures a couple of times but still has some difficulties understanding the gift aid system.
Could you re explain in what way does the tax payer obtain a tax relief from under the gift aid system?
Thanks in advance.
While you’re waiting for the lecture to reply, can I have a stab please?
As a basic rate tax rate tax payer you receive no benefit. However, it pushes up the higher and additional rate bands by the gross amount of your donation.
For example, let’s say you donate £80. You are assumed to have paid at least £20 tax on this amount, and the government gives this amount to the charity under the gift aid scheme. If you don’t pay any tax then you shouldn’t agree to donate gift aid.
Using the same example, the higher and additional tax bands will be extended by £100, the gross amount. Therefore, a 40% taxpayer will be £20 better off (£100 * (0.4 – 0.2)), and a 45% tax payer will be £25 better off (£100 * (0.45 – 0.2)). Their benefit will happen following their next tax return, unless they make a claim for it sooner.
As neil has said and it is in the notes and lecture – if you want to give a benefit of £100 to a charity then so long as you are at least a basic rate taxpayer you need only donate £80 under the gift aid system and the charity will then also be able to claim back from HMRC the £20 of basic rate tax that you suffered on the £80 of net income that you now donate.
If you are a higher rate or additional rate taxpayer then that tax relief is given to you by extending the basic rate band and if necessary the higher rate band by the gross amount of the gift aid payment,
In the exam you are not going to have to explain it – you are only going to have to deal with it correctly in the income tax computaion
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