The new allowances
The new dividend and interest regimes go live from 6th April 2016, allowing basic rate taxpayers to earn up to £1,000 interest (£500 for higher rate and £0 for additional rate) and everyone £5,000 in dividends tax free. These new allowances on dividend receipts and interest are very generous and it is expected that many individuals may end up paying less tax.
Gift aid works on the assumption that income tax has been paid by a donor in the first place and it is this income tax which is being reclaimed by the charity through Gift Aid. It is not the charity’s responsibility to check the validity of a Gift Aid declaration with regard to an individual’s personal tax situation. The Gift Aid scheme provides that any shortfall in tax paid by a donor compared to that claimed by the charity is the donor’s responsibility.
As a result, individuals who have never worried that their income tax bill is less than the Gift Aid on their donations may now become concerned that they will be chased by HMRC. Typically elderly individuals with little income above the Personal allowance are likely to being caught out by the new rules. An important demographic for charities.
If these individuals have enduring arrangements for charitable donations for example, they may not remember or realise they should reassess their tax position in light of the changes from April. Just as many in the sector have, HMRC are sure to have already identified this issue and will be fortifying their procedures for checking for any tax shortfall once the new rules go live. Going forward the introduction of the Government’s recently announced Digital Tax Accounts should make HMRC’s job of cross-checking much easier.
We have a concern that many donors – whether the coming change impacts their Gift Aid declaration or not – may take the precaution of re-assessing their charitable donations to ensure they avoid a tax demand. And some of those that remain unaware of the impact from April may cease to donate in future years if they realise why a tax demand has landed on their doormat.
Points to consider
To minimise any drop in donations as a result of the change, a campaign to publicise the change and its impact on Gift Aid donations to your benefactors might be advisable. Most of the publicity afforded to the change by the Government, media and other bodies is neglecting to explain the impact on Gift Aid giving. By raising awareness amongst your donors you could reduce the risk of a drop in donation income for your organisation.
For further information on the changes to the interest and dividend regimes or the impact on Gift Aid giving, please do contact Russell Fretwell or Jahirrol Alom in the Mazars not-for-profit specialist tax team or your usual Mazars tax contact.