Since 2004, it has been possible for individuals to donate some or all of any tax repayment to a chosen charity.
Participating charities have signed up with HM Revenue and Customs (HMRC) and been allocated a unique code, which is then entered in the relevant box on the tax return. A list of these charities is available on the HMRC website or by telephoning the Tax Office or the Self-Assessment Helpline on 08459 000 444.
When completing their Self-Assessment Return, many taxpayers will not know the exact amount of the tax repayment due to them. However, when giving to charity by this method, there is no obligation to donate the whole repayment. The return allows the option to specify a maximum donation. If the repayment is less than this amount, the total repayment will go to the charity. If the repayment is more than the specified maximum amount, then the balance will be repaid to the taxpayer.
The unique code allocated to charities that have signed up for the scheme has built in checks to ensure that typing errors do not result in the repayment going to the wrong charity. If the code is not recognised, the repayment will be made to the taxpayer who can still make a tax efficient donation to the charity.
If a repayment is donated to charity and it then transpires that the repayment occurred owing to an error on the part of the taxpayer, HMRC will recover monies due to them from the taxpayer. If a repayment is sent to a charity by mistake by HMRC, then it is down to them to recover the payment.
Charitable donations made through the tax return can be made under the Gift Aid scheme, whereby the charity can claim basic rate tax on the gift, provided the individual pays at least as much Income Tax or Capital Gains Tax as is reclaimed by the charity. The donor’s details will only be given if permission is granted, on the return, by the taxpayer.
Gifts to charities made in this way will be treated as made when the donation is passed to the charity by HMRC. In most cases, the payment will be made during the tax year following the one to which the return relates.
With charities suffering heavily in the economic downturn, the ability to donate through one’s tax return is an efficient and straightforward way of supporting good causes.