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If the total income of a person is 40000 and he is paying 2000 to charity…how will he have any tax benefits…i mean tax computation will be –
Total income 40000
Less PA: (11500)
taxable income 28500
income tax
basic rate – 28500 * 20%. = 5700Before donation tax liability was 5700 after donation also it is 5700…where is the benefit ?
Have you watched the chapter 2 lectures and read the OT study notes dealing with gift aid?
Chapter 2 Section 5What i wanted to ask is .. is it the case that taxpayer is only benefitted by the way in which HMRC pays the 20% to charity. ? like what if he dont want to pay 100 to charity and just pay 80 and get 20% relief on 80 i.e 1600 relief deducted from its final tax liability ?? why is this not the case..?
Firstly if the taxpayer is only a basic rate taxpayer there is NO impact on the income tax computation – if the taxpayer is higher or additional rate taxpayer there is an extension of basic rate band limit and higher rate band limit by the GROSS amount of the gift aid payment.
There is no deduction from the tax liability as you refer to above!
The benefit IS that if the taxpayer wishes for their favourite charity to benefit by £100 they need only make a gift aid paid payment of £80 and HMRC will make a payment to the charity of £20!
If the taxpayer has £80 AFTER deduction of basic rate tax at 20% they would have had income before basic rate tax of £100 (20% tax on 100 = 20 leaving the taxpayer with a net 80) therefore the 20 is paid by HMRC to charity.
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