Is Your Gift Aid system healthy? Why a Gift Aid Health Check is a good idea

According to UK government statistics¹, Gift Aid was worth £1.6 billion to the charity sector for the tax year to April 2024. It contributes an additional 25% of revenue to charities on qualifying donations, i.e. 25p for every £1 donation. This is a substantial resource available to utilise in fulfilling charitable objectives. But despite being such a valuable income stream, how often are internal Gift Aid processes reviewed within your charity to ensure that all is healthy and operating as it should be? Are all claims being made valid? Does your charity lose out on funds from claims it could be making?

As an overview, Gift Aid can be claimed by a recognised Charity or a CASC (Community Amateur Sports Clubs) registered with HMRC, on donations of ‘money’ by individuals where the following are satisfied:

• It is a gift to a charity (a ‘gift’ rather than payment for goods or services)
• It is a ‘payment of a sum of money’ (not cryptoassets unless converted to ‘money’ first)
• The individual making the donation has paid, or will pay, UK tax (income tax, capital gains tax, or both)
• An appropriate gift aid declaration is made by the donor.

The donation must also satisfy all the following conditions:

• The gift is not subject to a condition as to repayment
• The gift is not a Payroll Giving donation
• The gift is not deductible from income for tax purposes
• The gift is not part of an arrangement for the charity to acquire property from the individual or connected person
• Any benefits associated with the gift are within the statutory limits.

Recently, we have seen several instances, where, upon review, the Gift Aid system within a charity does not always get ‘a clean bill of health’. Identifying weaknesses early and undertaking regular monitoring, help to mitigate any negative impact to the charity quickly and allows action to be taken to strengthen it.

• Why does it matter? What are the risks in getting it wrong? Over-claiming Gift Aid can result in penalties – up to 100% of the over-claimed amount, along with repayment of the over-claimed amounts
• A freeze on ongoing/future gift aid claims being paid out by HMRC until issues are satisfactorily resolved
• HMRC can contact donors to request payment of additional tax to cover Gift Aid amounts claimed
• Not recognising or claiming Gift Aid when appropriate means that fewer funds are available for furthering the charitable objectives of the organisation
• Good governance in respect of Gift Aid is expected as part of your charity’s tax management strategy and this includes appropriate oversight of claims
• Reputational risk to the charity if things go wrong Breaching the General Data Protection regulations (‘GDPR’) or weak cyber security leading to a loss in donor confidence

What symptoms should charities be aware of?

From Gift Aid reviews we have undertaken recently, we have identified some key issues for consideration by charities. These cover a wide range of potential risk areas, from staff/volunteer involvement, having clear policies and procedures, the integration of new digital systems and the benefits offered to donors. For ease of reference, we have set these out in the table below, we have also suggested some actions which can be taken to address them.

Take a moment to consider these points against your own charity’s Gift Aid systems. Take action points forward on any of the issues noted below where you are unsure of the strength of your own controls, and going forward, give your Gift Aid system regular attention to keep it healthy and running as it should.

 

Issue	Action
Lack of documented internal policies and procedures on Gift Aid	Document both the policies and the procedures so that the making of claims is not dependent on any one person Consider having more than one trained individual to minimise a key person dependency risk.
Implementation of a new method of volunteer/staff training on Gift Aid	Timely implementation of new training Ensure that the training procedures are documented Record keeping of individuals who have been trained Follow up at regular intervals to ensure the training is understood and policies and procedures are being adhered to
Making the Gift Aid process digital	Review all digital Gift Aid declarations and the process of obtaining them against HMRC guidance Confirm whether Gift Aid declarations are written or oral declarations
Updates to storage systems for Gift Aid declarations	Check that Gift Aid claims can be traced to a valid Gift Aid declaration. Document how they can be found and review access permissions to the system. If a third party is used to assist with this, review the system and periodically check that valid Gift Aid declarations can be traced and found
Costs of membership benefits increasing more than membership fees	Regularly review the donor value of any membership benefits. With costs increasing, they may unknowingly exceed the de minimus limits and invalidate gift aid claims on memberships.
Use of third parties to assist in making Gift Aid Claims	Be aware that it is the charity’s responsibility to ensure that Gift Aid claims are valid Determine what oversight the charity will have on outsourced assistance and regularly review that Gift Aid claims are still valid with the third-party arrangements in place
Mergers of charities using historic gift aid declarations	Check that the charities have the same charitable objectives Contact HMRC in advance of the merger to explain what is happening and that Gift Aid can continue to be claimed under the existing Gift Aid declarations but received by the ‘new’ charity Seek to gain new declarations to the ‘new’ charity on a timely basis.
New and creative ideas for fundraising and Gift Aid donations	Review ideas to determine whether Gift Aid can be claimed before proceeding Consider ‘split’ costs/donations
Growing balances of Gift Aid prudently unclaimed – to be reviewed ‘later’	Have a regular review of these and determine whether any can be addressed individually or as a group.
Historic storage of Gift Aid declarations, dating back 10+ years	Consider retention requirements in light of GDPR rules Review/create a regular renewal policy for valid enduring declarations (e.g. every 5 years)
Lack of awareness on keeping Gift Aid donor data secure.	Review digital security of donor information.

   

---

1. UK charity tax relief statistics commentary - GOV.UK