Gift aid and charitable giving

In this lesson

1. 0:00 Gift Aid and charitable giving overview
2. 0:38 How Gift Aid grossing up works
3. 1:15 Gift Aid eligibility and basic rate taxpayers
4. 2:13 Higher and additional rate taxpayer relief
5. 3:46 Payroll giving as alternative method

About this lesson

You'll discover why HMRC grosses up donations to charities, how basic rate, higher rate, and additional rate taxpayers each benefit differently from gift aid relief, and when to apply payroll giving instead. This is essential knowledge for the Taxation (TX) paper, where you'll need to accurately compute adjusted net income and personal tax liabilities involving charitable donations. The lesson starts by explaining the mechanics of gift aid. When an individual donates £80 to a registered UK charity, the charity actually receives £100 because HMRC tops it up by the basic rate of tax (20%). The donor must declare they pay sufficient income tax or capital gains tax to cover this. For a basic rate taxpayer, there's no additional relief beyond this because they already receive 20% relief through the grossed-up donation. However, higher rate and additional rate taxpayers get further relief because the basic rate and higher rate bands are extended by the gross gift aid contribution, allowing them to pay tax at their lower rates on the donated amount. You'll also learn the key difference between gift aid and payroll giving. With payroll giving, the employer deducts an agreed amount directly from the employee's pay before income tax is applied, which reduces the taxable income and therefore the tax paid. National insurance contributions are still calculated on the gross pay, and there's no limit on the amount an employee can give through payroll. Understanding which method has been used in an exam scenario is crucial to getting the calculation right.

Duration: 5m