Tax Can Make You Money!

FANWoE - Black Development AgencyTuesday 13th July 2010

Panikos EfthimiouTraining Manager – CAF (Charities Aid Foundation)

UK Giving 2009 (CAF and NCVO)

charitable giving dropped by 11% to £9.9bn

the recession has driven giving back to 2006/7 levels

regular giving is increasing but cash remains most common method of giving

54% of adults still giving…a drop of 2%, which means 774,000 fewer people giving

only 4 in 10 donations are ‘Gift Aided’ – so £750m still remains unclaimed

Main methods of tax-efficient giving

Gift Aid

Payroll Giving

Shares

Legacies

What is Gift Aid?

For every £1 a UK tax-paying donor gives to yourcharity you will still* get an extra 28p from HerMajesty’s Revenue Customs (HMRC)…..

at no extra cost to the donor!

* commitment from government until 2011

Gift Aid today

enables the charity to reclaim basic rate income tax (20%) = 25p on every pound donated by UK taxpayer

transitional relief (not tax relief but ‘government expenditure’) will top-up donations by 3.2 pence per pound = 28.2p

higher rate taxpaying donors can reclaim the difference

Gift Aid and Higher Rate Taxpayers

£25.00

£25.00

Charity claims

40% taxpayer

20% taxpayer

£100

£100

Donation

£3.20

£3.20

Transitional relief

£128.20

£128.20

Total donation

£25.00

Donor reclaims

£160.25

£128.20

Full potential

NB Individuals that complete the self assessment form (SA100) can donate any tax repayment that is due to them directly to charity - Gift Aid can also be applied to this donationFor a charity to benefit from this, they must register separately with HMRC for a SA Donate reference number

50% taxpayer

£100 £25.00 £3.20 £128.20 £37.50 £176.28

Info to higher rate taxpayers (example)

GOOD NEWS…….GOOD NEWS!

“If you pay tax at either of the higher rates you canclaim further tax relief in your self-assessment taxreturn. Please remember that you can, if youwish, donate this to charity….which the HMRC willalso Gift Aid!”

Gift Aid – The Rules

donor must pay at least as much Income Tax and/or Capital Gains Tax as the charity claims back in Gift Aid from HMRC

donor must complete a Gift Aid declaration (paper or oral)

donor ‘thank you’ gifts cannot exceed HMRC’s ‘Donor Benefit Rules’

The health check

“I am a UK taxpayer and pay an amount of IncomeTax and/or Capital Gains Tax at least equal to thetax that can be reclaimed on my donation(s).”

The benefits valuation rule

SINGLE DONATION MAXIMUM BENEFIT

£0 - £100 £100 - £1,000>£1,000>£10,000

25% of donation £255% of donation£500

Examples of Gift Aid declarations

“Please treat this donation and all donations I makefrom the date of this declaration as Gift Aiddonations unless I notify you otherwise.”

Declaration for new donors

Examples of Gift Aid declarations

“Please treat all donations I’ve made during the pastfour years and all donations I make in the future asGift Aid donations until I notify you otherwise.”

Declaration for existing donors (retrospective claims)

NB HMRC pay interest on retrospective claims!

Gift Aid can be claimed on…

cash cheques direct debits standing orders credit/debit cards postal orders and can be made in any currency

(as long as donor is a UK tax payer)

Gift Aid cannot be claimed on…

purchase of most goods or services eg Christmas cards and jumble sales

raffle and lottery tickets donations already receiving tax relief

eg charity vouchers or payroll giving in-kind donations

Other potential Gift Aid – greyish areas!

sponsorship events membership events (not the admission price) auctions charity shop donations

NB the benefits valuation rule may affect any ‘gift aidable’ donation

Audit trail

Charities need to keep a clear audit trail to demonstrate to the HMRC that they havereceived the donations they are reclaiming tax on, aswell as having the correct Gift Aid declarations.

Easy guide to Gift Aid…getting the money!

get declarations from all your UK tax-paying donors complete new HMRC charity application form when making a claim charity must use the new

‘intelligent’ R68 (i) which will automatically calculate repayments for you! (also available in paper form)

HMRC are also reviewing claim/repayment process i.e. how much and how often…the charity sector will be consulted!

HMRC Guidance improvement: www.direct.gov.uk/giftaid.

Useful contacts/further help for Gift Aid

Institute of Fundraising www.institute-of-fundraising.org.ukwww.tax-effectivegiving.org.ukHelpline: 0845 458 4586

CAF Charity Financial Services (inc Gift Aid reclaim)www.cafonline.org/charityservices01732 520 316

What is payroll giving?

a way of giving to charity tax free scheme is processed by payroll giving agencies

(PGA’s) to provide an audit trail and prevent fraud all the PGA’s are listed on the HMRC website

“Costs you less to give more”

Tax effective

So, for example, the donor pledges £10, and the cost is either £8.00, £6.00 or £5.00 (depending on tax rate) and the charity receives £10.00

(PGA’s normally deduct a small admin fee)

Donor pledges

Actual cost(20%)

Actual cost(40%)

Actual cost(50%)

Charity Receives

£5.00 £4.00 £3.00 £2.50 £5.00

£10.00 £8.00 £6.00 £5.00 £10.00

£50.00 £40.00 £30.00 £25.00 £50.00

taxadvantage

employer matching

An added advantage

some employers offer matching on staff donations

others will pay the administration fee – some do both

good way for employers to support staff and is an incentive to get staff to join the scheme

Employer Quality Mark Awards

Awarded for staff participation rates and ‘employersupport’…

Bronze – 1% employee participation rate Silver – 5% employee participation rate Gold – 10% employee participation rate

‘Employer support’ – pay admin fees, matchdonations or promoted during past 12 months

What is the potential?

long-term donors

approx 724,000 individuals currently giving

24 million potential donors are paid via PAYE

there are over 2 million companies in the UK but…

only 10,000 are signed up to payroll giving

How does an employer join?

completes two copies of the contract and one payroll registration form

sends the forms to PGA PGA forwards payroll registration form to HMRC,

signs both copies of the contract and returns one to the employer

once these are completed the company is ready to promote to employees

How does an employee join?

fills in a form specifying their chosen charitable organisations and return it to their payroll department (or direct to charity)

deductions are made from the next available payday stop, start and change their donation or charitable

organisation whenever they wish can give to any charitable organisation in the UK

http://england.shelter.org.uk/donate/donate_through_your_payroll/donate_through_your_payroll

Easy guide to payroll giving

register your charity with all the PGA’s in order to receive donations

if you have paid employees register your charity as an employer with a PGA

start contacting your corporate supporters (one-off donors, charity of the year partners etc)….do they have a payroll giving scheme?

practise by running an internal promotion in your own organisation

Share giving

several million people in the UK own shares worth approximately £200 billion

£100 million is given as a gift of shares to charity each year

the average share gift is worth £7000

charities can sell shares or retain for future need

A share donor…

must be a UK tax payer to receive tax benefits receives all the benefit (as with payroll giving) receives Income Tax relief and potentially Capital

Gains Tax relief too should consult a financial adviser

(subject to personal circumstances)

Example – 20% taxpayer

individual donates shares worth £5000 – can claim income tax relief of £1000 (20% of £5000)

so donation has cost donor £4000, while charity has been given shares worth £5000

donor will not have to pay any Capital Gains Tax having given shares to charity

personal circumstances may change this

Example – 40% taxpayer

individual donates shares worth £5000 – can claim income tax relief of £2000 (40% of £5000)

so donation has cost donor £3000, while charity has been given shares worth £5000

donor will not have to pay any Capital Gains Tax having given shares to charity

personal circumstances may change this

Example – 50% taxpayer

individual donates shares worth £5000 – can claim income tax relief of £2500 (50% of £5000)

so donation has cost donor £2500, while charity has been given shares worth £5000

donor will not have to pay any Capital Gains Tax having given shares to charity

personal circumstances may change this

Talking to potential shareholders

company newsletters charity newsletters/literature specific mailings to supporters face to face with major donors financial advisers

Things to remember

ask if the donor is a UK tax payer consider your charity’s ethical policy keep accurate records suggest donor seeks independent financial advice don’t offer financial advice yourself…unless you

are qualified to do so

Seeking help

CAF 03000 123 107 www.cafonline.org/shares

HMRC0845 302 0203 www.hmrc.gov.uk/shares

APCIMS (brokers)020 7247 7080 www.apcims.co.uk

IFA Promotion (financial advisers)020 7833 3131 www.ifap.org.uk

ShareGift 020 7337 0501 www.sharegift.org

Legacies – leaving money to charity in a will

also known as a bequest

inheritance tax relief current threshold £325,000, and £650,000 for married

couples or civil partnerships (frozen at this level in 2010 budget until 2014/5)

current rate 40%

charitable legacies (bequests) are free of inheritance tax

Legacies – key statistics

• they bring in £1.95bn a year to charities• pecuniary legacy has average value of £3,500• residuary legacy has average value of £51,300

while 75% of the population give during their lifetime, only 7% remember a charity in their will

can be: money (pecuniary legacy) specified item of value (eg jewellery, artwork,

vehicle)

Legacies – motivations

existing donor of the charity connection with the cause – themselves or others always supported (even if not a donor) to save tax, or to stop tax man getting his hands on any

money no one else to give it to no one else needs it

Of course we cannot be sure but what drives people to dothis (unless each individual tells us!) but what is essentialis that charities continue promoting them

Promoting legacies

regular/committed givers solicitor networks special one-off events – promoted in trade

magazines www.willaid.org.uk www.rememberacharity.org.uk

Legacies – smaller budgets

local contacts solicitors and trustees articles in local paper legacy stories in newsletters including legacy request in talks

don’t be in a rush – this will take time!

Other useful contacts

Institute of Fundraising www.institute-of-fundraising.org.uk020 7840 1000

Her Majesty’s Revenue & Customs www.hmrc.gov.uk/charities 0845 302 0203

CAF Charity Services www.cafonline.org/charityadmin01732 520 316

Speak to me

Panikos Efthimiou

pefthimiou@cafonline.org

07720 405702

www.cafonline.org