The government Gift Aid scheme means that a donation to charity can be increased by 25% so that the charity is effectively getting tax relief on the donation.
So if you give £10 to charity and claim gift aid then the charity will get £12.50. Gift aid only applies at basic rate tax and not at higher rate (see below for more on this).
But if you are wondering can I claim Gift Aid on charity donations? then the answer is, only if you are actually paying some tax. So, if your earnings come below the personal allowance and you are not paying any other tax like Capital Gains Tax, then you cannot claim the Gift Aid on your donations to charity.
So this means that each year when the personal allowance increases, there will be more people that will be in the situation where they are not paying tax and therefore cannot claim Gift Aid.
However, as long as you are paying some tax, then you can claim Gift Aid on donations up to 4 x the amount of tax that you have paid in that tax year.
You will need to notify the charity that you are eligible to claim Gift Aid and if you do this when you are not actually eligible then you will be liable to pay back that tax.
If you pay higher rate tax then you can reclaim the difference between the higher and lower rate though your tax return.
Are you wondering if the personal allowance is prorated – i.e you are only given a portion of it if you only work for part of the tax year?
Perhaps you are about to leave the country or maybe you have just left college and only just started work. Perhaps you are checking what happens when someone has died.
In any case the answer is no, the personal allowance is not prorated – everyone is given the full personal allowance to use in one tax year.
For example, if you are in full time education, and you start work in the January of a particular year, then you are still given the whole personal allowance that you can apply to your earnings from January to 5th April. So for 2016/17 you could earn £11,000 and not have to pay any tax on that money.
Or maybe you leave the country half way through the tax year and become non-resident then you are still entitled to use the whole of the personal allowance for the period of the year that you were resident in the UK (there are other complex rules on earnings overseas that may have to be taken into account though).
Or, if someone dies perhaps in May, then their executors can still set their earnings for that tax year against the whole personal allowance for that tax year. They would then need to claim the overpaid tax from HMRC.
One upshot of this, if it is the case that you start or finish earning in the middle of the tax year, is that it is possible that you will pay too much tax as your tax code may assume that your personal allowance should be spread over the whole tax year.
In terms of starting a new job, you may be taxed at the basic rate to start with until your tax code is sorted out.
If you have stopped earning part way through a tax year, you should check how much tax you have paid. If you think you have paid too much tax then you can reclaim this overpayment at the end of the tax year. In some circumstances you may be able to get a refund of over paid tax before the end of the tax year. Check with the tax office if you need clarification.
There has been a lot of press lately about the K2 Tax Avoidance schemes that are used by some high earners to significantly reduce their tax bill. The one person who was singled out by Prime minister David Cameron was comedian Jimmy Carr. Continue reading Are K2 Tax Schemes Legal?