When you make a donation to a charity, CASC or voluntary organisation, that charity is able to claim back the tax that you have paid on the donation. This mechanism is called Gift Aid and amounts to an extra 25p for every £1 that you give.

If you give £10 to a charity and you are a basic rate taxpayer (20%), you will have paid £2.50 in tax on the gross donation (to take home £10, you will have earned £12.50 before tax). Charities are able to reclaim this £2.50 back from HMRC.

Gift Aid can be applied to any UK, EU, Norwegian or Icelandic charity that is registered with HMRC.

You must be a UK taxpayer for your donation to qualify for Gift Aid. You must have paid or will pay an amount of Income Tax and/or Capital Gains Tax for the current tax year (6 April to 5 April) that is at least equal to the amount of tax that all the charities and Community Amateur Sports Clubs (CASCs) that you donate to will reclaim on your gifts for the current tax year. Other taxes such as VAT and Council Tax do not qualify. The charity will reclaim 25p of tax on every £1 that you have given.

You will need to inform the charity that you are a UK taxpayer and you would like them to reclaim the tax on your donation. You will do this by making a Gift Aid declaration, most commonly done by filling in a simple form, provided to you by the charity. You can see a sample Gift Aid declaration form here.

In the 2008 budget, the basic rate of tax was reduced from 22% to 20%. Whilst this was good news for taxpayers, charities were concerned that this drop would lead to a dramatic loss in revenue from Gift Aid income (i.e they would lose 3p per £1 on every donation). The government therefore announced that they would make up this loss for 3 years to allow charities to adjust to the change. Therefore, until April 2011, the government gave charities an additional 3.2p on top of the standard Gift Aid payment for every £1 that you donated, making the total up to £1.28. This measure was called Transitional Relief. So:

You gave £100

Charity claims basic rate tax on gross gift from HMRC (20% of £125) £25.00

Transitional relief £3.20

Total Charity receives £128.20

If you pay a higher rate of income tax, either at 40% or 50%, you can claim the difference between the basic rate of tax reclaimed by the charity and your highest rate. This can be done via your self assessment tax return. For more information about how to do this, and the amount that this relief could be worth to you, click here.

You can work out how much your donation is worth by using our Gift Aid calculator, on the left hand side of this page.