The change in the basic rate of income tax means charities face being out of pocket.
HMRC has confirmed that it will provide transitional relief for charities who are facing a fall in the value of their gift aid donations following this year’s reduction of the basic rate from 22% to 20%.
On donations made on or after 6 April 2008, charities will claim their gift aid repayments at the new basic rate of 20%. Many donations will come via direct debits and standing orders from donors who may not have realised that the income tax basic rate change will affect the amount charities can reclaim. This is likely to leave charities substantially out of pocket in relation to last year’s donations. The government is therefore providing, via HMRC, a transitional relief to help charities adjust to their new income levels and give them time to publicise the need for a higher donation level.
HMRC will provide a relief of 3p for every £1 donation charities receive under this year’s gift aid scheme. This relief will apply to all qualifying gift aid donations between 6 April 2008 and 5 April 2011. This will be paid automatically alongside the gift aid tax repayments, even if a charity has already made a gift aid repayment claim this year.