The Gift Aid scheme operated by HMRC increases gifts to the churches currently by 25%. Each donor will be required to make a Gift Aid declaration and identify his or her gifts. This is best done by the use of cheques, cash in marked envelopes or bank transfers. Each donor must have paid tax sufficient to cover the tax on all Gift Aid payments by him or her in each tax year.
Donors who have previously used the tax paid on savings and dividend income to cover Gift Aid donations will need to reassess their position. From 6 April 2016 there were a number of changes made to the way certain types of income are taxed. The first £1,000 of interest from banks and building societies for basic rate tax payers (£500 for higher rate tax payers) and the first £5,000 of savings income (if your total income does not exceed your personal allowance plus £5,000) are now taxed at 0%. Also, the first £5,000 of dividend for all tax payers is now taxed 0% with the old tax credit system abolished from 6 April 2016. As a result of these changes some donors will cease to be tax payers. Failure to ensure sufficient tax has been paid to enable the total of chapel and all other charities to reclaim equivalent gift aid on donations made could lead to a personal debt to HMRC for the donor.
The church will need to keep records of its Gift Aid payments and lodge claims with HMRC for the tax repayments. Cash donations of £20 or less each can also qualify for “top up” tax refunds up to a maximum of £8,000 per annum from 6 April 2016. The limit on small donations income was £5,000 per tax year between 6 April 2013 and 5 April 2016. Clear rules need to be in force to identify relevant cash donations.