This is a guide to help dentists understand how the tax system can help you increase the size of your donation and obtain tax relief for yourself.
Tax incentives for charitable giving have long played a crucial role in encouraging individuals and businesses to support philanthropic causes and can also ensure that more money goes to charities.
Who can I donate to?
You can donate to anyone. However, only a payment to a gift-registered charity or Community Amateur Sports Club (CASC) will qualify for tax relief.
Whether it is a dental one or one you have a personal connection to, like a local hospice or one of the many churches, mosques, synagogues, schools and museums registered as charities and with Community Amateur Sports Clubs (CASC), you should have many opportunities to make tax-efficient donations using gift aid.
What is gift aid?
Gift aid is income tax relief that, once declared, can benefit UK-registered charities, Community Amateur Sports Clubs (CASC), and donor-advised funds.
A word of warning: not all charities qualify for gift aid
- Some charities and CASCs do not register for gift aid because of the extra administration
- Some can’t register as they are outside of the UK, e.g. Ireland.
Before making any donations, you want to claim tax relief; it’s worth checking if the charity has registered for gift aid and the sports club is a registered CASC with HMRC. See example 6
How can I give to non-UK charities and get tax relief?
You cannot get tax relief on overseas donations, but donor-advised funds can be used to donate money to overseas charities not registered in the UK. A donor adviser fund can spend money outside the UK, provided it qualifies under the UK’s charitable rules.
How can I check if a charity or sports club is registered for gift aid?
You can check conveniently if a sports club is a registered CASC. The list is not updated in real-time, so double-check with the club you donate to confirm they are still registered.
There is no gift aid register against which to check charities, but there are charity commission registers where you can search for their contact information.
- England and Wales – See Governance Tab to Confirm Registered for Gift Aid
- Northern Ireland
-
For the rest of this article, I will refer to CASC as a charity unless otherwise stated.
What are the benefits of gift aid?
- If you donate money to either type of qualifying organisation, your organisation will receive more. They will ask you to make a gift aid declaration, allowing them to claim an extra 25p from the government for every £1 you give. The organisation will claim the extra from HMRC themselves.
- You may pay less tax – For higher (40%) or additional (45%) rate taxpayers (anyone with a total taxable income over £50,270 or £125,140), you can claim tax relief for your gift aid donations from HMRC when filing your tax returns. Depending on the rates at which you pay your taxes, you can get a tax reduction from 25p to 31.75p for every £1 you give, as shown in examples 1 and 2. The tax relief you get if you live in Scotland is different.
- You may pay less of a high-income child benefit charge – if your income is between £50,100 and £60,000, gift aid donations will reduce your income for calculating the amount of your child benefit charge.
What can I gift aid?
Donating money by cash or a bank transfer voluntarily without getting anything significant in return made with a gift aid declaration can qualify for gift aid. Providing certain conditions have been met, the following could also qualify.
- subscriptions
- purchases at charity auctions when the ‘retail value’ of the item is disclosed at the auction and purchased at an excess of its value
- proceeds from the sale of goods you have donated
- memberships
- sponsorships
What can’t I gift aid?
- Gifts of money with a repayment condition
- Donations made to charity through payroll giving aren’t eligible for Gift Aid because they’re taken from your wages before tax.
- Payment for items or services, e.g. purchasing tickets to a charity dinner.
- Payment from a limited company
- Payment to participate in an event, e.g. enter a cycle race
- Barter transactions, e.g. providing dentistry services
- Membership fees to a CASC, e.g. golf club
- Gift aid is restricted when you or your family benefits from a payment, e.g., donating in exchange for your travel costs being paid for a trip to climb Mount Everest.
- Payment of money that doesn’t belong to you, e.g. funds collected from patients for a sponsored silence at work
- Gift of shares
- Gift of property
- Gift of goods, e.g. food items to a food bank
Example 1 – 25% tax relief for 40% higher rate taxpayers
Darren has taxable profits of £70,000 from his self-employment as an associate dentist and pays income tax at the 40% higher rate.
As a dental student, he was helped financially by the BDA benevolent fund. He remembers this vital support he recived and gives a one-off donation of £100.
Darren has checked, and they are a registered charity for gift aid. He donates and completes a gift aid declaration for the charity to claim an extra 25%, totalling £25.
He tells his accountant about the donation. The accountant claims tax relief on his tax return.
As a 40% higher-rate taxpayer, Darren saves £25, 25% of £100, making the after-tax relief (NET) cost of his donation £75.
Example 2 – 31.75% tax relief for 45% higher rate taxpayers
David has taxable profits of £250,000 from his self-employment dental practice and pays income tax at the 45% upper rate.
His associate dentist volunteers for school visits with the Dental Wellness Trust.
He makes a one-off donation of £1,000 to the trust and completes a gift aid declaration as they are a gift aid registered charity. They claim an extra 25% of £250 on David’s donation.
He tells his accountant about the donation. The accountant claims tax relief on his tax return.
As a 45% higher-rate taxpayer, David saves £317.50, 31.75% of £1,000, making the after-tax relief (NET) cost of this donation £682.50.
Example 3 – no tax relief to claim for basic rate taxpayers
Davina has taxable profits of £40,000 from her part-time self-employment as an associate dentist and pays income tax at the basic tax rate.
Davina has decided to support Dentaid, the Dental Charity that provides dental care and oral health advice for people experiencing homelessness and other under-served communities.
Davina donates £100 and completes a gift aid declaration for the charity to claim an extra £25.
She tells her accountant about the donation, who tells her no tax relief is to be claimed as she has not paid tax at the higher rate.
Example 4 – tax to pay for a non-taxpayer
Debbie, an associate dentist, decided to take a sabbatical to volunteer for the UK dental charity Bridge2Aid programme development team.
In the tax year, she takes a sabbatical, works for one month, has taxable profits of £5,000 and has no tax to pay as her income is below her tax-free allowance.
She donates £ 1,000 to Bridge2Aid and completes a gift aid declaration for the charity to claim the extra £250.
A condition of gift aid is declaring you are a UK taxpayer and paying enough tax to cover the amount of your gift aid. As Davina hasn’t paid enough UK tax to cover the £250 amount of the gift aid, she will need to pay the difference to HMRC on her tax return.
It might seem that Davina has made a mistake by making a gift aid declaration. Her accountant had told her that the donation could be ‘carried back to the previous tax year when she paid tax at the higher rate.
As a 40% higher-rate taxpayer, Debbie saves £250, 25% of £1,000. See example 5 below.
Planning points
- If you make a significant donation and want to know how much tax you will save. You can claim tax relief after the end of the tax year using a ‘carry-back’, as shown in example 3, so it may be worth waiting.
- You must complete a gift aid form as evidence of your donation.
- You must have paid tax (Income or capital gains) at least four times your donation amount. If not, you will have to top up any shortfall between the amount of tax you have paid and the charity has claimed.
- Tax law does not allow amendments to figures reported as tax return donations filed. This is unlike general tax returns, which allow amendments to figures. This nuance means you must ensure all donations have been correctly recorded and paid before filing your tea return, as there is no opportunity to estimate and correct your figures after filing your tax return.
- A gift to a UK charity in a will is free from inheritance tax, meaning that the money is ‘removed’ from the value of your estate before tax is calculated.
- In addition to the ‘will’ donation being tax-free, charitable gifts can reduce the amount of inheritance tax paid on the rest of the estate. If 10% or more of the estate is gifted to charity, the inheritance tax rate paid on the rest is reduced from 40% to 36%.
- Gifts in wills can make a significant difference between the causes you care about the most whilst positively impacting the remainder of your estate. It would help if you took legal advice on how best to build charitable donations into your will; the options are direct gifts or using trustees to make donations from a fund allocated under the will.
*Example 5- ‘carry back’ tax relief
Davina, an associate dentist, decided to take a sabbatical to volunteer for the UK dental charity Bridge2Aid programme development team.
In the tax year, she takes a sabbatical, has no taxable profits of £25,000, gives a £1,000 donation to Bridge2Aid and completes a gift aid declaration. These profits are insufficient to pay tax at a higher rate, and Davina can claim further tax relief.
Her accountant tells her the donation can be ‘carried back to the previous tax year when she paid tax at the higher rate.
As a 40% higher-rate taxpayer, Davina saves £250, 25% of £1,000.
Example 6 – Charity is not registered for gift aid, no tax relief
Derek, an associate dentist, wanted to support the UK dental charity SmileStar, which is committed to spreading smiles across the globe by providing dental care services to underprivileged communities in African countries, India, and ex-Royal Marines in the UK.
Derek donates £2,000 and informs his accountant that he can claim tax relief at a higher rate on his tax return.
His accountant asks Derek for evidence that the donation was ‘qualifying for tax relief’ and made by giving the charity a gift aid declaration.
Derek says he didn’t make a gift aid declaration, and his accountant checks the charity commission register for the SmlieStar governance tab to see that they are not registered for gift aid.
Derek is disappointed to discover no tax relief is available upon his donation.
To avoid doubt, his accountant points him to the income tax legislation in Section 416, which defines a qualifying donation as someone who gives a ‘gift aid declaration’ to the charity and where the donation meets conditions A to F.
Derek now accepts that he did not provide a gift aid declaration, that his donation is not qualifying, and that he can’t claim the higher rate of tax relief.
Do I donate from my company or personally?
Donations can be given in your name or if you run a company using your company. There are subtle tax differences to consider between the two options. At the moment, this article only covers the more common personal donations.
I will add an update about making donations from a company to the article. If you need to know about making company donations and can’t wait for my update, please message me, and I will add it.
It’s a complex question to answer. The answer is it depends.
What can’t make a gift aid donation?
- Company
- Overseas
- not registered
This is a guide to help dentists understand how the tax system can help you increase the size of your donation and obtain tax relief for yourself.
Tax incentives for charitable giving have long played a crucial role in encouraging individuals and businesses to support philanthropic causes and can also ensure that more money goes to charities.
Who can I donate to?
You can donate to anyone. However, only a payment to a gift-registered charity or Community Amateur Sports Club (CASC) will qualify for tax relief.
Whether it is a dental one or one you have a personal connection to, like a local hospice or one of the many churches, mosques, synagogues, schools and museums registered as charities and with Community Amateur Sports Clubs (CASC), you should have many opportunities to make tax-efficient donations using gift aid.
What is gift aid?
Gift aid is income tax relief that, once declared, can benefit UK-registered charities, Community Amateur Sports Clubs (CASC), and donor-advised funds.
A word of warning: not all charities qualify for gift aid
- Some charities and CASCs do not register for gift aid because of the extra administration
- Some can’t register as they are outside of the UK, e.g. Ireland.
Before making any donations, you want to claim tax relief; it’s worth checking if the charity has registered for gift aid and the sports club is a registered CASC with HMRC. See example 6
How can I give to non-UK charities and get tax relief?
You cannot get tax relief on overseas donations, but donor-advised funds can be used to donate money to overseas charities not registered in the UK. A donor adviser fund can spend money outside the UK, provided it qualifies under the UK’s charitable rules.
How can I check if a charity or sports club is registered for gift aid?
You can check conveniently if a sports club is a registered CASC. The list is not updated in real-time, so double-check with the club you donate to confirm they are still registered.
There is no gift aid register against which to check charities, but there are charity commission registers where you can search for their contact information.
- England and Wales – See Governance Tab to Confirm Registered for Gift Aid
- Northern Ireland
For the rest of this article, I will refer to CASC as a charity unless otherwise stated.
What are the benefits of gift aid?
- If you donate money to either type of qualifying organisation, your organisation will receive more. They will ask you to make a gift aid declaration, allowing them to claim an extra 25p from the government for every £1 you give. The organisation will claim the extra from HMRC themselves.
- You may pay less tax – For higher (40%) or additional (45%) rate taxpayers (anyone with a total taxable income over £50,270 or £125,140), you can claim tax relief for your gift aid donations from HMRC when filing your tax returns. Depending on the rates at which you pay your taxes, you can get a tax reduction from 25p to 31.75p for every £1 you give, as shown in examples 1 and 2. The tax relief you get if you live in Scotland is different.
- You may pay less of a high-income child benefit charge – if your income is between £50,100 and £60,000, gift aid donations will reduce your income for calculating the amount of your child benefit charge.
What can I gift aid?
Donating money by cash or a bank transfer voluntarily without getting anything significant in return made with a gift aid declaration can qualify for gift aid. Providing certain conditions have been met, the following could also qualify.
- subscriptions
- purchases at charity auctions when the ‘retail value’ of the item is disclosed at the auction and purchased at an excess of its value
- proceeds from the sale of goods you have donated
- memberships
- sponsorships
What can’t I gift aid?
- Gifts of money with a repayment condition
- Donations made to charity through payroll giving aren’t eligible for Gift Aid because they’re taken from your wages before tax.
- Payment for items or services, e.g. purchasing tickets to a charity dinner.
- Payment from a limited company
- Payment to participate in an event, e.g. enter a cycle race
- Barter transactions, e.g. providing dentistry services
- Membership fees to a CASC, e.g. golf club
- Gift aid is restricted when you or your family benefits from a payment, e.g., donating in exchange for your travel costs being paid for a trip to climb Mount Everest.
- Payment of money that doesn’t belong to you, e.g. funds collected from patients for a sponsored silence at work
- Gift of shares
- Gift of property
- Gift of goods, e.g. food items to a food bank
Example 1 – 25% tax relief for 40% higher rate taxpayers
Darren has taxable profits of £70,000 from his self-employment as an associate dentist and pays income tax at the 40% higher rate.
As a dental student, he was helped financially by the BDA benevolent fund. He remembers this vital support he recived and gives a one-off donation of £100.
Darren has checked, and they are a registered charity for gift aid. He donates and completes a gift aid declaration for the charity to claim an extra 25%, totalling £25.
He tells his accountant about the donation. The accountant claims tax relief on his tax return.
As a 40% higher-rate taxpayer, Darren saves £25, 25% of £100, making the after-tax relief (NET) cost of his donation £75.
Example 2 – 31.75% tax relief for 45% higher rate taxpayers
David has taxable profits of £250,000 from his self-employment dental practice and pays income tax at the 45% upper rate.
His associate dentist volunteers for school visits with the Dental Wellness Trust.
He makes a one-off donation of £1,000 to the trust and completes a gift aid declaration as they are a gift aid registered charity. They claim an extra 25% of £250 on David’s donation.
He tells his accountant about the donation. The accountant claims tax relief on his tax return.
As a 45% higher-rate taxpayer, David saves £317.50, 31.75% of £1,000, making the after-tax relief (NET) cost of this donation £682.50.
Example 3 – no tax relief to claim for basic rate taxpayers
Davina has taxable profits of £40,000 from her part-time self-employment as an associate dentist and pays income tax at the basic tax rate.
Davina has decided to support Dentaid, the Dental Charity that provides dental care and oral health advice for people experiencing homelessness and other under-served communities.
Davina donates £100 and completes a gift aid declaration for the charity to claim an extra £25.
She tells her accountant about the donation, who tells her no tax relief is to be claimed as she has not paid tax at the higher rate.
Example 4 – tax to pay for a non-taxpayer
Debbie, an associate dentist, decided to take a sabbatical to volunteer for the UK dental charity Bridge2Aid programme development team.
In the tax year, she takes a sabbatical, works for one month, has taxable profits of £5,000 and has no tax to pay as her income is below her tax-free allowance.
She donates £ 1,000 to Bridge2Aid and completes a gift aid declaration for the charity to claim the extra £250.
A condition of gift aid is declaring you are a UK taxpayer and paying enough tax to cover the amount of your gift aid. As Davina hasn’t paid enough UK tax to cover the £250 amount of the gift aid, she will need to pay the difference to HMRC on her tax return.
It might seem that Davina has made a mistake by making a gift aid declaration. Her accountant had told her that the donation could be ‘carried back to the previous tax year when she paid tax at the higher rate.
As a 40% higher-rate taxpayer, Debbie saves £250, 25% of £1,000. See example 5 below.
Planning points
- If you make a significant donation and want to know how much tax you will save. You can claim tax relief after the end of the tax year using a ‘carry-back’, as shown in example 3, so it may be worth waiting.
- You must complete a gift aid form as evidence of your donation.
- You must have paid tax (Income or capital gains) at least four times your donation amount. If not, you will have to top up any shortfall between the amount of tax you have paid and the charity has claimed.
- Tax law does not allow amendments to figures reported as tax return donations filed. This is unlike general tax returns, which allow amendments to figures. This nuance means you must ensure all donations have been correctly recorded and paid before filing your tea return, as there is no opportunity to estimate and correct your figures after filing your tax return.
- A gift to a UK charity in a will is free from inheritance tax, meaning that the money is ‘removed’ from the value of your estate before tax is calculated.
- In addition to the ‘will’ donation being tax-free, charitable gifts can reduce the amount of inheritance tax paid on the rest of the estate. If 10% or more of the estate is gifted to charity, the inheritance tax rate paid on the rest is reduced from 40% to 36%.
- Gifts in wills can make a significant difference between the causes you care about the most whilst positively impacting the remainder of your estate. It would help if you took legal advice on how best to build charitable donations into your will; the options are direct gifts or using trustees to make donations from a fund allocated under the will.
*Example 5- ‘carry back’ tax relief
Davina, an associate dentist, decided to take a sabbatical to volunteer for the UK dental charity Bridge2Aid programme development team.
In the tax year, she takes a sabbatical, has no taxable profits of £25,000, gives a £1,000 donation to Bridge2Aid and completes a gift aid declaration. These profits are insufficient to pay tax at a higher rate, and Davina can claim further tax relief.
Her accountant tells her the donation can be ‘carried back to the previous tax year when she paid tax at the higher rate.
As a 40% higher-rate taxpayer, Davina saves £250, 25% of £1,000.
Example 6 – Charity is not registered for gift aid, no tax relief
Derek, an associate dentist, wanted to support the UK dental charity SmileStar, which is committed to spreading smiles across the globe by providing dental care services to underprivileged communities in African countries, India, and ex-Royal Marines in the UK.
Derek donates £2,000 and informs his accountant that he can claim tax relief at a higher rate on his tax return.
His accountant asks Derek for evidence that the donation was ‘qualifying for tax relief’ and made by giving the charity a gift aid declaration.
Derek says he didn’t make a gift aid declaration, and his accountant checks the charity commission register for the SmlieStar governance tab to see that they are not registered for gift aid.
Derek is disappointed to discover no tax relief is available upon his donation.
To avoid doubt, his accountant points him to the income tax legislation in Section 416, which defines a qualifying donation as someone who gives a ‘gift aid declaration’ to the charity and where the donation meets conditions A to F.
Derek now accepts that he did not provide a gift aid declaration, that his donation is not qualifying, and that he can’t claim the higher rate of tax relief.
Do I donate from my company or personally?
Donations can be given in your name or if you run a company using your company. There are subtle tax differences to consider between the two options. At the moment, this article only covers the more common personal donations.
I will add an update about making donations from a company to the article. If you need to know about making company donations and can’t wait for my update, please message me, and I will add it.
It’s a complex question to answer. The answer is it depends.
What can’t make a gift aid donation?
- Company
- Overseas
- not registered
