Page last updated at 23:19 GMT, Tuesday, 24 November 2009

How Gift Aid can boost charities' income

Money Talk
By Sailesh Mehta
HW Fisher and Company Chartered Accountants

Sailesh Mehta
Sailesh Mehta is head of the charities group at HW Fisher

The recession has taken its toll on most organisations — and charities, voluntary and community organisations are no exception.

The UK Giving 2009 survey published recently by the Charities Aid Foundation and National Council for Voluntary Organisations found that total charitable donations to the UK's 170,000 or so charities have dropped by about 11% in the past year to £9.9bn.

More than 3,000 people were surveyed and, on average, they donated £10 each per month in 2008/09, a drop of £1 on the previous year.

While this may not sound like much, the impact, in many cases, has been severe. A large number of charities have had to make job cuts and other cost savings at the exact time - during a recession - when their services are in demand.

It is the fate of charities to be needed most when there is least to give.


A slightly more encouraging statistic is that while the economic downturn has reduced the total amount donated, the number of people in the UK making charitable donations each month has fallen by only a small amount, from 56% to 54%.

Many of the bigger charities have a system in place to ensure that Gift Aid can be claimed on goods donated and sold through their shops

Medical research, hospitals, hospices and young people remain the most popular causes that people support, while cash (48%) and direct debit (31%) are the most popular ways to give.

One area of particular concern is that approximately £750m of Gift Aid - tax relief at the basic rate on money donated to UK charities - goes unclaimed each year on charitable donations.

In fact, the UK Giving 2009 survey found that only four in 10 donors "Gift Aided" their donations. The reason for this is the lack of public awareness.

This is a problem because if everyone Gift Aided their donation, or at least twice the number of people who are currently donating ticked the Gift Aid box when making donations, charities would reap significant financial benefits without the donors having to give any additional funds.

In fact, were everyone to properly Gift Aid their donations, topping up charities' coffers by £750m, it would more than make up for the £700m shortfall in donations that occurred in 2008/09 compared with 2007/08.

Charity shops

For a lot of people, giving to charity will come in the form of dropping off clothes or other possessions at the local charity shop.

Charity collection
Charity collection has been hit by the downturn

But parking on double yellow lines, quickly running into the local charity shop with a bin liner full of old suits, plonking them into the outstretched arms of the lady behind the counter and running out again is not always the most tax-efficient way to give to charity.

The reason for this is that Gift Aid only applies to cash donations, not to the donation of possessions or other goods.

But that is not to say you should not drop goods off at charity shops - because you should.

Not many people know that many of the bigger charities, such as the British Heart Foundation, Mind, veterinary charity the PDSA and Sue Ryder Care, have a system in place to ensure that Gift Aid can be claimed on goods donated and sold through their shops.

Simply by ticking a small box, or filling in a form, the UK public can make up for the shortfall charities are currently experiencing without having to spend a penny more

Essentially, when someone hands over an individual item or selection of items that will sell for a reasonable price, they will be asked to complete a Gift Aid form with a specific tracking number, or unique donor code.

Once the item or items have been sold, and this could be a day or a month later, the charity shop will contact the donor, specify the amount that the item sold for and ask if they may Gift Aid it.

If the donor agrees, the sum of money that the item sold for will be instantly Gift Aided and the price achieved will go a lot further.


The British Heart Foundation, for example, highlights how a large bag of donated items that sells for £30 in total will benefit from an extra £8.46 in reclaimed tax if it is Gift Aided in the way highlighted above.

To give you an idea of just how effective this system is as a fundraiser, the PDSA, which was one of the first charities to reclaim tax on items dropped off at its shops, announced this month that it had raised an additional £1m through Gift Aid.

A sizeable chunk of this came through 70,000-plus people Gift Aiding when handing over their unwanted goods at the charity's outlets.

Clearly, this method of giving will only really apply to items of a certain value. After all, it will not be worth the trouble for a dog-eared Mills and Boon that will sell for 5p.

But it is certainly something people should bear in mind when they next go into a charity shop with a bin liner bursting with their potentially quite valuable possessions.

Simply by ticking a small box, or filling in a form, the UK public can make up for the shortfall charities are currently experiencing without having to spend a penny more.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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