The Gift Aid Gap: ramifications of income tax proposals in the UK

19 April 2022 | Applicable law: England and Wales

On 23 March, Chancellor Rishi Sunak announced the first reduction in income tax in 16 years. The 1% planned decrease from 20% to 19% is for basic rate income tax from April 2024 will have an impact on gift aid in the charity sector. 

Gift Aid allows charities to reclaim income tax on donations made by UK taxpayers and the scheme is currently worth over £1.3bn a year to the charity sector. For basic rate taxpayers the scheme adds approximately 25% to the value of any donation.

Whilst this reduction of only 1% represents a cut of £5bn paid out by the taxpayer, an estimated £250m in Gift Aid over three years could be lost.

To mitigate the impact of this, the Government has proposed a transitional relief period of three years which will safeguard over £250m of charity income by maintaining the income tax basic rate relief at 20% until April 2027.

The Charity Tax Group (CTG), chaired by Richard Bray, praised the Chancellor’s decision to introduce transitional provisions as in 2007, as the last time the basic rate of income tax was reduced, the CTG had to campaign hard for transitional reliefs to apply. The CTG are this time urging the Chancellor to ‘take the opportunity to reintroduce research and development tax credits for charities and to recognise the government’s ability to introduce new VAT rates that could benefit those charities providing much-needed services’.

CTG are to continue their campaign for an improved Gift Aid system to maximise the amounts being claimed by the end of the transition period, including improving the claim rate (as the CLG estimates more than £500m is unclaimed).

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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