Anyone who has made a charitable donation in the current year and has yet to file last year’s return could do well to consider the possibility of claiming to carry donations made in 2012/13 back to 2011/12 on the return they are about to submit.
Gift aid tax relief for donations to charities provides the donors who pay more than the basic rate of income tax with the additional bonus of a reduction or refund of tax:
- for 40% taxpayers that is equivalent to 25% of the cash sum donated; and
- for 50% payers the reduction or refund is 37.5%.
Making a donation in the current year but not relating it back will normally mean a reduction in the tax payable on 31 January 2014 unless donations are regularly made and so factored into either payments on account or PAYE coding.
The claim cannot be made after the tax return filing date
The rule for claiming carry-back is very strict. The deadline for making the claim is the earlier of the date when the return is actually submitted and the normal filing date for the return. So:
- it is only possible to claim to carry back donations made in the current tax year before 31 January; and
- no carry-back is possible if the return has already been submitted.
It is not possible to amend a return that has already been submitted, even if you try to do so before 31 January. This was tested by an unfortunate donor who had his carry-back claim rejected by the Tax Tribunal (J Cameron v HMRC).
The benefit may be more than cash-flow
The value of carrying back gift aid donations depends on the personal circumstances of the donor. Where regular donations are already taken into account in coding or self assessment payments on account, whether the benefit is worth the effort may depend on the amount donated but if donations are large, carry-back of regular donations may be worthwhile.
Another factor to consider is the rate at which relief is given. As mentioned above, 40% taxpayers get relief of 25% of the donation, 50% taxpayers get 37.5%. So if your top income tax rate for 2011/12 was higher than this year that is an additional reason for carrying back but if you are going to pay tax at a higher rate this year consider whether a smaller reduction or refund obtained sooner is really more worthwhile than a larger reduction later.
Be aware of changing tax rates
Another factor affecting the benefit of the timing of carry-back is the coming change to the top rate of tax, from 50% to 45% from 6 April, meaning that the reduction in tax payable due to gift aid becomes 31.25%, not 37.5%.
If you are planning for the rate change by deferring income that would have been taxed at 50% until 6 April or after, will you still benefit from full gift aid relief on this year’s donations? If not, carrying back this year’s donation may ensure maximum benefit. Similarly, if you expect to make significant donations in 2013/14 you may want to carry them back to 2012/13 to get the maximum benefit from gift aid relief.
For more guidance on year-end tax planning, look out for Mazars’ year-end tax planning guide.
For further information contact Chris Williams