December 19, 2017 : Jenny Bloomfield

Gift Aid and the new Scottish income tax

As charities and CASCs, we do not need to worry about recent changes to income tax bands – and nor, in the main, do our donors.

Unless you were otherwise engaged with, oh, I don’t know, Christmas shopping last week, you may have noticed the draft Scottish budget being announced. For the first time, this year’s budget set new income tax rates and bands across the working population. You can see our response to those changes here, but what I want to talk about in this blog is Gift Aid.

Ah, Gift Aid! Yes, this is my gift to you this Christmas: a Gift Aid blog. I know, I know, you can thank me later.

Seriously though, just how are the new rates and bands going to affect Gift Aid?

As a lot of you know already, Gift Aid is worth £1billion to the UK third sector, and links to the basic rate of income tax (20p in the £). The Gift Aid scheme means that every donor who pays income tax (or capital gains tax) can essentially redirect that tax from the UK Government to any charity they donate to. This redirection matches the basic rate of income tax of 20p in the £. But with some Scottish taxpayers – who donate to both Scottish and UK charities – soon to pay only 19p in the £ in income tax*, will some of this Gift Aid dry up?

Well, the short answer is yes – but don’t panic! We’re talking miniscule amounts of difference here.

Let me explain: firstly, most years the personal tax allowance increases. This is set by the UK Government and is the amount of money that people can earn without paying income tax. So, most years, a few people will no longer pay enough income tax to cover the Gift Aid on their donations. This is normal.

This year, there will be slightly more Scottish taxpayers for whom this is the case. This is because of the introduction of the new starter rate of income tax at 19p in the £. This new rate will apply to earnings between £11850 and £13850. So let’s say that a donor earns £13850 a year and donates a very generous £1600 in a year. As a basic rate taxpayer, they would have paid enough tax to cover the cost of the Gift Aid in this case. But as a new starter rate taxpayer, they will be £20 short, and so will need to let the charity they donate to know that it can no longer claim Gift Aid on their donations (or else decrease their donations slightly).

However, this case will apply to a limited number of people (median donations in Scotland across all income levels are actually only £240 a year). And it’s no different to what occurs when the personal tax allowance increases, taking low income earners and donors into the ‘not paying sufficient income tax’ bracket (assuming they don’t pay capital gains). Plus, as always, all donors who tick the Gift Aid box need to pay enough tax in the year to cover their Gift Aid – something generous donors on any tax band need to be aware of.

So, as charities and CASCs, we do not need to worry about changes to the tax bands – and nor, in the main, do our donors.

Merry Christmas!

*This blog assumes that the draft budget passes with the income tax rates and bands as set out by the Scottish Government – not guaranteed with a minority government…

Important: Opinions expressed by bloggers are their own and don't represent those of the Scottish Council for Voluntary Organisations.

by Jenny Bloomfield