The Cyclone disaster in Burma and the Earthquake in Wenchaun China has led to a number of enquiries as to how to make tax-efficient charitable donations. The 'Gift Aid Scheme' for Partnerships covers one-off donations. Charitable donations made under the 'Gift Aid Scheme' enable the charity to reclaim basic rate tax of 20% plus 2% transitional relief from the Government. Higher rate taxpayer donors are able to obtain additional tax relief via their tax return. Under the Gift Aid Scheme donations are deemed to have been made net of basic rate tax. It is perhaps best explained by use of a simple example:
For Partnerships and LLPs the gift aid donation is disallowed in the tax computation and then allocated between the partners as agreed. The higher rate tax relief (40% less basic rate tax of 20% reclaimed by the charity, ie 20%) is on the grossed-up donation and is obtained via the individual partners’ tax returns. To be effective the charity needs to receive a signed 'Gift Aid declaration' on behalf of the partnership/LLP, giving the name and address of the Partnership/LLP and confirmation that the partners are at least basic rate taxpayers. Ideally, the declaration should show how the gift aid donation is to be allocated between the partners, we can provide a suggested ‘form of words’. For Partnerships the partner signing the gift aid declaration must have power under the partnership agreement or some other document to make a gift aid declaration on behalf of the partnership. If the Partnership/LLP makes a number of donations to a variety of charities and you do not wish to be burdened by administrative paperwork you can still make these donations tax-effectively if you use a Charities Aid Foundation charity account. The Charities Aid Foundation (cafonline.org) is itself a charity and you are able to make one-off donations to this organisation. They then provide you with an 'account' out of which you make transfers to other charities. It is the donation to the Charities Aid Foundation under the 'Gift Aid Scheme' that is the relevant donation for tax purposes. To obtain the higher rate tax relief the Partnership/LLP should keep a record of the payment and date of the donation.
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