Gift Aid

Never look a gift horse...

The Chancellor introduced a new gift aid scheme as part of the Government’s policy to “get Britain giving”. Barry Gower extols the virtues and accumulative powers of these financial benefits to independent schools.

The rules governing gift aid have been relaxed: dispensing with the £250 minimum gift, simplifying the paper work and administration, and making things a lot easier for the donor to give in a tax-efficient manner and for the benefiting charities to claim this additional source of income.

Charities have, on the whole, been rather poor in taking advantage of this handout, with recovery rates for gift aid estimated at around 30 per cent. The Charities Aid Foundation, which has calculated this figure, suggests that a further 30 per cent of gift aid is available but is simply not being incorporated into fundraising activities.

The net result is that an estimated £800 million is foregone each year by charities through unclaimed gift aid. This is compounded by the fact that tax can be backclaimed for up to six years, which means that close to £5 billion is available. Perhaps the saddest part of this is that the taxman will actually “pay” donors up to 23 per cent of the value of their donation, simply for making their donation using tax-efficient giving. I will elaborate on this later in this article.

What’s in it for schools?
The element that makes all of this possible is, of course, that an independent school can also be a registered charity – indeed most are. Once your school has charitable status, it qualifies for gift-aidable donations; as always, there will be some paperwork for you to comply with gift aid rules and regulations.

Unfortunately, the school’s major source of income – fees – does not qualify as a donation. But what should immediately spring to mind is that all other sources of funds which comprise donations could qualify for an extra 28 per cent handout from the Government. Some items that should be considered include direct donations, sponsored events – walks, marathons, bike rides and so on – fundraising dinners, auctions (these need to be handled carefully but can qualify), committed giving from alumni – direct debits, standing orders, annual donations, to name a few. All of these can and should use gift aid to increase the value of the funds raised by 28 per cent.

Money, money, money
But it gets even better. As I mentioned earlier, the Government will actually “pay” individual donors to donate. And what better group of individual donors than your own alumni? One of the advantages of going to an independent school will be the prospects of achieving financial success, with the associated higher rate tax payer status. However, such a donor can also claim tax relief of 18 per cent (the difference between the higher rate of 40 per cent and basic rate of 22 per cent).

The net result, once the numbers have been crunched, is that the donor will get a tax rebate (that is, a cash-back or payment from the taxman) equal to 23 per cent of what he or she gave to your school.

And it gets better still. Persuade this generous donor to donate this rebate to your school as well, and you will have increased the original donation by over 50 per cent.

Enjoy the gift
As a quick illustration, say a higher rate tax-paying donor makes a donation under gift aid of £78. The gift aid (28 per cent of £78) is £22, so the gross benefit to your school is £100. The tax relief to the donor is £18 (18 per cent of the gross donation of £100).

Persuade the donor to donate this to your school as well, and the total benefit of the donation will be £118, an increase of £40 or 51 per cent. This is at no additional cost to the donor.

However, a small word of warning: like gold mining, there is an element of danger. You have to get it right. Because the taxman’s basic instinct is to collect money, not give it away, any claim which does not comply with the gift aid regulations will not be paid, and could also be subject to penalties.

That caveat aside, there are not many opportunities in this life to get something back from the taxman, both for your school and your donor.

Barry Gower is managing director of GAIN (Gift Aid Recovery Consultants). He can be contacted on email: bg@gain.me.uk

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