Charitable Giving Offers the Feel-Good Factor and Can Reduce Your Tax Bill
Charitable Giving Offers the Feel-Good Factor and Can Reduce Your Tax Bill
By Jeff Meek
Only last week I lugged four bin bags full of unwanted clothes to our local charity shop, parked briefly on a double yellow line and handed over the bulging black bags to a mildly harassed volunteer.
Pleased that I had ticked yet another task off my 'to do' list I jumped back into the car and sped off. I know now, however, that I was actually missing a trick which has the inestimable virtue that is a good deal for the charity as well as for me.
That's because the charity shop in question is a member of an HMRC approved-scheme which permits it to claim Gift Aid tax relief on my donation which means that, in turn, I too can set some of my donation against my tax bill. And at time when higher rate tax payers are looking at marginal tax rates of around 60 per cent, that is no mean consideration.
Broadly, for the scheme to apply, the donor of the goods must be a UK taxpayer and must register for the scheme at the shop. When the goods are sold the charity shop can claim from HMRC an extra 28p for each £1 at which the item was sold. The donor too benefits, with 40 per cent tax payers able to reclaim 25p through their tax return.
In each case the tax relief only applies when the goods, which can include clothes, books and CD's, are sold and the charity will write to the donor to confirm both the sale of the donated items and that they want to donate all or part of the sale proceeds to the charity.
The sale of the goods is critical; no tax break applies until then and the goods remain the property of the donor until the sale; even then, in theory, the donor could demand repayment of the funds raised though this never or rarely happens, apparently, in practice.
The scheme, often referred to as 'Retail Gift Aid', is available to any registered charity or amateur sports club seeking to raise funds by sale of the donated goods. Strictly speaking, donations of goods for sale in this way do not qualify for Gift Aid. Gift Aid only applies to gifts of money, so in effect the charity is offering to act as an agent for its supporters, and sell goods on their behalf in the hope and expectation that the owner chooses to donate the sale proceeds.
The high profile charity shop chain, Cancer Research UK, is currently running a pilot project along these lines in 19 of its shops many in Scotland including those at Edinburgh, Dalkeith, Dunfermline and Linlithgow.
The result should be that the scheme will boost significantly Cancer Research's revenues. According to the Association of Charity Shops around 3,500 charity shops throughout the UK already run a 'Retail Gift Aid' schemes for donated stock which resulted in an additional £19 million of revenues in 2009.
It is reported also that the charity chain, Sue Ryder Care, which first started operating the scheme in 2006, has seen it lead to an additional £5 million of tax-reclaimed revenues over the period. Other charity chains, including Oxfam, British Heart Foundation, Age UK, Scope and Mind run similar schemes, while the British Red Cross has extended Gift Aid to more than 100 of its shops.
From the point of view of the individual tax payer, the claw-back of personal allowances this year for those earning over £100,000 might be readily offset to some extent by delivering those bin bags full of clothes to a registered charity shop. In this climate taxpayers need all the help they can get but there are few tax breaks, like these, that can also make you fell virtuous.
Charities thinking about using this type of arrangement for the first time are recommended to contact HM Revenue & Customs (HMRC) Charities to discuss their plans before you implement them. Contact the Charities Helpline on Tel 0845 302 0203 (open from 8.00 am to 5.00 pm, Monday to Friday). Select option 6 for Gift Aid.
Jeff Meek is Managing Partner of the Edinburgh office of French Duncan LLP, Chartered Accountants.
This article appeared in The Scotsman, 22 May 2010.