Business News

HMRC updates gift aid rule

Charity shops must be clearer about the tax implications of buying their products, HMRC has said in new guidance on donations to charity.

The guidance notes explain how the tax system operates for charities, including how to set up and run a charity.

A gift aid donation is treated as being made after the deduction of the basic rate of income tax at the time the donation is made. The charity can reclaim the tax as long as it meets three conditions:


  • The charity must have a gift aid declaration made by the donor which covers the donation.
  • The charity must have evidence that they’ve explained to the donor the personal tax implications of making a gift aid donation. This can be done by including an explanation on the gift aid declaration or separately.
  • There must be an audit trail linking the donation to the donor and their gift aid declaration.

Charities can’t claim gift aid on donations of physical items, for example, clothes or books. They can only claim it on donations of money.

The donor must be charged with income tax and/or capital gains tax for the year of donation at least equal to the tax treated as deducted from their donation, HMRC said.

If more than one gift aid donation has been made in the tax year they must be added together to work out the tax the donor must be charged with. If the donor isn’t charged with sufficient tax to cover the income tax deducted from their gift aid donations, then they will owe the amount of the difference in tax to HMRC.

​“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,” the ICAEW said.