HMRC issues guidance document explaining changes to Gift Aid

HM Revenue and Customs (HMRC) has issued new guidance to charities regarding the changes to Gift Aid.

The new rules surrounding the tax break, which can be an important source of income for a wide range of charities, are laid out in a new guidance document published by HMRC aimed at helping charities adopt the measures.

Template

The new advice includes a template letter that outlines the various methods of claiming Gift Aid.

Charities can't claim Gift Aid on donations of physical items, so charity shops often ask people who donate common items such as CDs, books, games and clothing to make a Gift Aid declaration.

This is because charities can claim Gift Aid on donations, and that includes the income from the sale of goods that have been donated, as long as the donor holds the legal and beneficial ownership of the goods up until the point that they are actually sold.

After sale donation

Under this rather complicated set-up, the items sold are effectively turned into money that the 'owner' then 'donates' to the charity.

Under these circumstances, the usual Gift Aid conditions then apply, which does means that the donor in each case must still have sufficient tax liability to cover the reclaimed tax from the government by the charity under the Gift Aid scheme.

The Institute of Chartered Accountants in England and Wales (ICAEW) commented on the matter in a blog post: "It does sound as though HMRC may be planning to take a closer look at charity shops that operate Gift Aid schemes for donated goods and at donors who make Gift Aid declarations but do not pay sufficient tax to cover the donations."