Do you have to claim Gift Aid on a tax return?

A recent question that arose in Taxation magazine was whether taxpayers are obliged to claim all allowances, specifically Gift Aid for charitable donations. The basis of the query was that since Gift Aid is a relief it should not be an obligation to report it, however, HMRC may still wish to be told as excessive donations can create a liability. The query also pointed out that the adviser would not want to omit small amounts of interest, even if they were covered by the savings allowance. The full question is here.

There is no legal basis for claiming a relief and HMRC will certainly not insist a relief is claimed. However, where HMRC discover a loss of tax, they will be able to raise an assessment. If there is no loss of tax, an assessment cannot be made.

“If an inspector [discovers] … that an assessment to tax is or has become insufficient, … the Board may make an assessment” (s29 (3), TMA 1970). There are no provisions for HMRC to make a ‘repayment assessment’ if the tax paid is too high.

Further, where HMRC discover an omission is made (for example, by reconciling the charity’s claim for the 20% Gift Aid to the client’s tax return), they may consider there is a risk that other areas are also incorrect and on that basis open an enquiry.

In relation to claiming Gift Aid relief, the legislation in ITA 2007 states “An individual who makes a gift to a charity which is a qualifying donation is entitled to the relief” s414(1). The key word here is ‘entitled’. There is nothing in the legislation that requires or obligates a taxpayer to claim the relief. In fact, the implication of ‘entitled’ is that Gift Aid relief should be automatic. Given the data HMRC receive from charities, your client may expect a tax refund without a claim. This is entirely dependent on HMRC’s systems though and is unlikely to happen if the relief is not claimed.

Compare this wording to that of Interest Relief, where s383, ITA 2007 states “A person who pays interest in a tax year is entitled to relief for the tax year for the interest if…the person makes a claim.” (my emphasis).

Although it is not a legal requirement to claim a relief, where not claiming the relief results in a shortfall, this would be an inaccurate return that would result in a liability. In this situation, HMRC could raise assessments and potentially apply penalties. Omitting information on reliefs, particularly where HMRC is likely to receive corresponding information from another area, may also result in a higher risk of enquiry.

Regardless of whether GIft Aid relief is claimed, it is worth checking the position to ensure there is no additional liability. Charitable donations will only qualify for Gift Aid if they are “not more than 4 times what you have paid in tax in that tax year”.

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