charity gift-aid
Discussion
What am I missing…?
All government websites and online calculators use the same maths:
earn £100 after tax and donate it to charity…
the charity has to assume you are a lower 20%tax payer, so they reclaim £25 based on that giving a total of £125 and £100 is the nett after 20% tax on £125
so far, so good - makes sense…
however, they go on to say…
if you are a 40% tax payer you can reclaim the difference between 40% and 20% (ie the other 20%) in your tax return…
they all say that this is a further £25 giving a total of £150
but, our original £100 nett would have been £166.67 gross as 40% tax on £166.67 is £66.67 leaving £100 nett
so if the charity reclaims £25, shouldn’t a 40% tax payer reclaim £66.67 - £25 or £41.67
otherwise there is still £16.67 or 10% going to HMRC and at £50 reclaimed between charity and donor, only 30% is being reclaimed…
the reason it is not a second lot of £25 is that the charity initially assumes a 20% tax payer so £25 is the right amount to reclaim, but had they known that you were a 40% tax payer, 20% of the gross earned to give £100 nett is £33.335, so effectively they will have underclaimed… but as there is no way to know that is their formula… but at the point that a self-assessment is completed it is known, so why isn”t the full extra amount reclaimed?
All government websites and online calculators use the same maths:
earn £100 after tax and donate it to charity…
the charity has to assume you are a lower 20%tax payer, so they reclaim £25 based on that giving a total of £125 and £100 is the nett after 20% tax on £125
so far, so good - makes sense…
however, they go on to say…
if you are a 40% tax payer you can reclaim the difference between 40% and 20% (ie the other 20%) in your tax return…
they all say that this is a further £25 giving a total of £150
but, our original £100 nett would have been £166.67 gross as 40% tax on £166.67 is £66.67 leaving £100 nett
so if the charity reclaims £25, shouldn’t a 40% tax payer reclaim £66.67 - £25 or £41.67
otherwise there is still £16.67 or 10% going to HMRC and at £50 reclaimed between charity and donor, only 30% is being reclaimed…
the reason it is not a second lot of £25 is that the charity initially assumes a 20% tax payer so £25 is the right amount to reclaim, but had they known that you were a 40% tax payer, 20% of the gross earned to give £100 nett is £33.335, so effectively they will have underclaimed… but as there is no way to know that is their formula… but at the point that a self-assessment is completed it is known, so why isn”t the full extra amount reclaimed?
however, if you give £133.33
charity reclaims £33.33 giving them £166.66
you reclaim the same £33.33 meaning that it only cost you £100 which is the correct nett after 40% tax on a gross of £166.66/7
so if you earn £166.67
take home £100 and give it to charity, HMRC keep c. 10%
if though you find an additional £33.33 and reclaim it in your annual return the full amount goes to charity… but you have to be able to sub that extra £33.33 until you can reclaim it…
charity reclaims £33.33 giving them £166.66
you reclaim the same £33.33 meaning that it only cost you £100 which is the correct nett after 40% tax on a gross of £166.66/7
so if you earn £166.67
take home £100 and give it to charity, HMRC keep c. 10%
if though you find an additional £33.33 and reclaim it in your annual return the full amount goes to charity… but you have to be able to sub that extra £33.33 until you can reclaim it…
Not quite.
It actually works more like this:
You gift aid £100 to a charity.
The charity claims back £25 to make a £125 gross contribution.
But that £125 contribution should only have cost you £75
So the further £25 of tax relief is claimed through your tax return (or tax code if you don’t have to do tax returns).
It actually works more like this:
You gift aid £100 to a charity.
The charity claims back £25 to make a £125 gross contribution.
But that £125 contribution should only have cost you £75
So the further £25 of tax relief is claimed through your tax return (or tax code if you don’t have to do tax returns).
Zigster said:
Not quite.
It actually works more like this:
You gift aid £100 to a charity.
The charity claims back £25 to make a £125 gross contribution.
But that £125 contribution should only have cost you £75
So the further £25 of tax relief is claimed through your tax return (or tax code if you don’t have to do tax returns).
yes, that is kind of the equivalent of my second example - i.e. you can reclaim the full amount as long as you can afford the extra for up to a year before you reclaim it… if you are doing this only from spare cash and want to give nett to you £100 (which you earned £166.67 before tax) then you effectively have to find the additional £33.33 until you can reclaim it…It actually works more like this:
You gift aid £100 to a charity.
The charity claims back £25 to make a £125 gross contribution.
But that £125 contribution should only have cost you £75
So the further £25 of tax relief is claimed through your tax return (or tax code if you don’t have to do tax returns).
same as your example, if you wish to give a nett £75 and have the charity gain the remaining £50 from the £125 you earned gross, you have to find the additional £25 until you can reclaim it to do that…
You’ve lost me, I’m afraid. I’m not sure what the problem is.
If the timing of the additional tax relief is a problem for you, can’t you just get your tax code adjusted to reflect a certain amount of charitable giving during the year. That way, you effectively get the tax relief as you go along during the year.
If the timing of the additional tax relief is a problem for you, can’t you just get your tax code adjusted to reflect a certain amount of charitable giving during the year. That way, you effectively get the tax relief as you go along during the year.
Sorry - it was more of a philosophical thought process 
That those who might wish to give have to give more to give the same amount and then reclaim rather than for example being able to declare that you are a 40% tax payer or even reclaiming the extra on your tax return
ie you think you are giving £100 and all the tax you paid to earn £100 but in fact you are effectively giving £75 and all the tax you earned to be paid £75 - unless you first give more which not everyone can do…
Getting the tax code altered is an interesting thought…
That those who might wish to give have to give more to give the same amount and then reclaim rather than for example being able to declare that you are a 40% tax payer or even reclaiming the extra on your tax return
ie you think you are giving £100 and all the tax you paid to earn £100 but in fact you are effectively giving £75 and all the tax you earned to be paid £75 - unless you first give more which not everyone can do…
Getting the tax code altered is an interesting thought…
tax rate is 20%
you give £100, charity gets £20 extra back from tax man
then you pay less tax at your marginal rate on your charitable giving
if you are 40% or 45% tax payer, it costs you even less to give to charity, i see it as a way to divert some of my earnings to things I care about
you give £100, charity gets £20 extra back from tax man
then you pay less tax at your marginal rate on your charitable giving
if you are 40% or 45% tax payer, it costs you even less to give to charity, i see it as a way to divert some of my earnings to things I care about
bogie said:
tax rate is 20%
you give £100, charity gets £20 extra back from tax man
then you pay less tax at your marginal rate on your charitable giving
if you are 40% or 45% tax payer, it costs you even less to give to charity, i see it as a way to divert some of my earnings to things I care about
Absolutely. I give in fond memory of my personal allowance you give £100, charity gets £20 extra back from tax man
then you pay less tax at your marginal rate on your charitable giving
if you are 40% or 45% tax payer, it costs you even less to give to charity, i see it as a way to divert some of my earnings to things I care about
(first world problem)Gassing Station | Finance | Top of Page | What's New | My Stuff