Gift Aid and Payroll Giving: tax relief on donations

Gift Aid is the scheme that lets a charity claim back from HMRC the basic rate income tax you are treated as having already paid on a donation. For every £1 you give, the charity can claim back 25p, so a £100 gift is worth £125 to the charity¹. In practice, Gift Aid was added to 52% of UK individuals' donations by value, according to official statistics for 2016, the most recent year for which that breakdown is given². The scheme costs most donors nothing extra, but it only works if you have actually paid enough income tax or capital gains tax in the tax year to cover what the charities claim back³.

Payroll Giving is the other main route. Instead of donating from taxed pay and letting the charity reclaim the tax, your donation is taken from your pay before income tax is worked out, so the relief reaches you immediately at your highest rate. Both schemes are run through the tax system, and this page explains how each one works, what the rules are, and where each one stops.

How Gift Aid works: 25p for every £1 you give

When you make a Gift Aid declaration, you are telling HMRC that your donation should be treated as if it came out of your pre-tax income. A £100 donation is treated as a gift before tax of £125, because a basic rate taxpayer would have had to earn £125 to have £100 left after 20% income tax. The charity then claims the £25 difference back from HMRC¹. The mechanism is the same whatever rate of tax you actually pay: the charity always gets the basic rate top-up, and any relief above basic rate belongs to you, not the charity.

The declaration is what triggers the claim, not the donation itself. Without a declaration, the charity cannot reclaim anything, which is why charities ask you to tick a box, fill in a form, or confirm by text or online. One declaration can cover many future donations, so you do not need to make one every time you give.

For the charity, the scheme is significant. Official statistics show Gift Aid was added to 52% of UK individuals' donations by value in 2016², and the tax repaid flows to the charity from HMRC. For the donor, the donation itself is not a taxable event: voluntary donations to charity are outside the scope of VAT⁶, so no VAT is charged on the gift, and gifts to a charity are usually not taxed for Capital Gains Tax purposes either⁷.

Who can use Gift Aid: you must pay enough tax

The condition attached to every Gift Aid declaration is that you must have paid at least as much income tax or capital gains tax in the tax year as the charities claim back on your donations³. The tax that counts is income tax and capital gains tax actually paid in that year. If the total claimed back by charities is more than the tax you paid, the difference can be recovered from you, so the condition is not a formality.

Checking this means looking at the tax you actually paid, not the tax shown as deducted on payslips, because some of that may have been refunded. Your P60, your Self Assessment calculation, or your HMRC online account will show the figure. HMRC's online tool for checking tax on dividends and savings interest can help in straightforward cases, but it only applies if you have tax code 1257L, and it cannot be used if you file a Self Assessment tax return, get any foreign income, or receive Marriage Allowance or Blind Person's Allowance⁹. If any of those apply, you need to work from your own tax records instead.

People with little or no income tax liability, such as those whose income falls within their Personal Allowance, generally cannot use Gift Aid without building up a tax bill. The same applies to people whose only taxes are VAT, council tax and National Insurance: none of those count. The basics of how income tax is charged, including the bands and the Personal Allowance, are covered in income tax: bands, rates and how your bill is worked out.

The Gift Aid declaration: what you sign and how to cancel it

A Gift Aid declaration is the statement you make that confirms your donation is to be a qualifying donation. The rules that govern declarations are set out in the Donations to Charity (Gift Aid Declarations) Regulations 2016, made under powers in the Finance Act 1999 and section 428 of the Income Tax Act 2007¹⁰. Older declarations have a transitional position: declarations given on or before 5 April 2017 that were capable of covering later donations continue to have effect for gifts made after that date¹⁰.

Two protections are built into the rules. First, the charity must explain the effect of section 424 of the Income Tax Act 2007, the section that makes you responsible for the tax if you have not paid enough, at the time the declaration is given¹⁰. Second, you are entitled to cancel the declaration by giving notice to the charity, in writing or orally¹⁰. Cancelling stops future donations being covered; it does not undo donations already made.

Charities must keep auditable records of declarations for six years from the end of the tax year in which the declaration was given¹⁰, so there is a paper trail if HMRC queries a claim. There is also a separate process for intermediaries: a donor can give permission to an intermediary, such as a platform or sponsoring organisation, to create Gift Aid declarations on their behalf¹¹. Before giving such a declaration, the intermediary must have been authorised by the donor and must have given the donor the same explanation of the effect of section 424¹⁰.

Claiming higher-rate relief on Gift Aid

The charity's claim only ever covers the basic rate. If you pay higher or additional rate tax, the gap between your rate and the basic rate belongs to you, and to get full tax relief you need to claim it back on your annual tax return¹². The same principle applies in pension schemes that use relief at source: higher and additional rate taxpayers must complete a tax self-assessment to claim their full relief¹³, and Gift Aid works in a comparable way, with the extra relief claimed through Self Assessment.

The arithmetic is easier to see with the Scottish example, because the rates are different, but the method is identical for UK higher rate taxpayers. On a £100 donation, the gift is treated as £125 before tax. A taxpayer paying 42% tax can claim back an additional £27.50, worked out as £125 multiplied by 22%, the gap between 42% and the 20% the charity has already reclaimed¹.

If you do not normally file a tax return, claiming this relief means registering for Self Assessment for the year in question. The deadlines for registering, filing and paying are the same as for any other Self Assessment claim, and the relief can also affect other calculations that use your adjusted net income, as explained below.

Gift Aid for Scottish taxpayers

Gift Aid itself works the same way in Scotland: the charity still claims back 25p for every £1 donated¹. What differs is the claim for the extra relief, because Scottish income tax rates and bands are set by the Scottish Government and differ from the rest of the UK. Scottish income tax is paid to the Scottish Government¹⁴, and Scottish taxpayers claim back the difference between the tax they paid on the donation and what the charity got back¹.

The worked example on the official Scottish guidance uses a taxpayer paying 42% tax, who can claim back an additional £27.50 on a £100 donation, being £125 multiplied by 22%¹. The same guidance sets out the equivalent additional relief for other rates: 1% relief on income taxed at 21%, 25% relief on income taxed at 45%, and 28% relief on income taxed at 48%¹. Those figures are given in the guidance in the context of pension relief, but they show how the gap between the Scottish rates and the basic rate determines what can be claimed back.

Gift Aid also feeds into the Scottish income tax figures themselves. Official outturn statistics for 2024 to 2025 record a Gift Aid adjustment of minus £139 million for Scotland, reflecting the tax repaid on Scottish donors' gifts¹⁵. How the rules differ across the nations is covered more generally in money in Scotland, Wales and Northern Ireland.

Limits on what you can receive in return

Gift Aid applies to gifts, not purchases. If a charity gives you something in return for a donation, the law caps the value of that benefit. For gifts made on or after 6 April 2019, where the gift exceeds £100, the limit is the sum of £25 and 5% of the amount of the excess over £100⁴. So on a £200 donation, the charity may give you benefits worth up to £25 plus 5% of £100, which is £30 in total. If the benefits exceed the limit, the payment is not a qualifying donation and no Gift Aid can be claimed on it.

This is why some museums and attractions charge around 10% more for a "Gift Aid ticket". The higher price is typically structured as the standard admission plus a voluntary extra donation, and with a declaration the attraction can claim tax back on the donation element. The VAT treatment supports this structure: admission charges by public authorities or eligible cultural bodies to certain cultural events, such as museum visits, carry a 0% VAT rate, and voluntary donations to charity are outside the scope of VAT altogether⁶.

A separate valuation limit applies to business donations of goods to charity for VAT relief purposes: donations in scope of that relief must be valued at no more than £100, or £200 for certain specified items, from 1 April 2026¹⁶. That limit applies to businesses giving goods, not to individual donors, but it is part of the same boundary between a gift and a supply.

Paying too little tax to cover your Gift Aid

If the total Gift Aid claimed by charities on your donations is more than the income tax and capital gains tax you paid in the tax year, the shortfall does not simply disappear. Where tax is due back on a donation, the tax goes to you or the charity³, and HMRC can recover from you the amount claimed back that you did not cover through your own tax payments. This is the effect of section 424 of the Income Tax Act 2007, which charities must explain when they take your declaration¹⁰.

The risk is greatest for people whose income dropped during a tax year, such as after retiring, reducing hours, or a large refund of previously deducted tax. In those situations the tax actually paid can be far below what payslips suggested. If you realise partway through a year that you will not pay enough tax, you can cancel the declaration prospectively by giving notice to the charity¹⁰, which stops future donations being covered.

How Payroll Giving works

Payroll Giving, sometimes called Give As You Earn, works the other way round from Gift Aid. Instead of giving money you have already paid tax on and letting the charity reclaim the basic rate, your donation is deducted from your pay before income tax is calculated. The legal basis is in the Income Tax (Earnings and Pensions) Act 2003, which allows deductions to be made from employment income in respect of payroll giving under Part 12 of that Act⁵.

The practical effect is that your taxable pay is reduced by the donation, so you pay less income tax on your payslip. A donation of £80 through Payroll Giving costs a basic rate taxpayer £80 out of pre-tax pay, and the same £80 costs a higher rate taxpayer £80 of pre-tax pay too, which is worth more in tax saved the higher your rate. Unlike Gift Aid, no claim to HMRC is needed and no declaration is required, because the relief is applied at source through PAYE.

To use the scheme, your employer must run it, and donations go through a Payroll Giving agency to the charities you choose. You tell your employer or payroll team the amount you want to give each pay period, and the deduction appears on your payslip. The scheme covers registered charities; donations to community amateur sports clubs are treated differently, as explained in the next section.

Where Payroll Giving stops

Payroll Giving has three limits worth knowing. First, it cannot be used for every kind of recipient: you cannot donate to a CASC, a community amateur sports club, through Payroll Giving³. Donations to CASCs can still qualify for Gift Aid, so a club that is registered as a CASC is reached through direct donations with a declaration instead.

Second, because the donation comes out of your pay before tax, it reduces your taxable earnings, and deductions of this kind can have knock-on effects. Guidance on salary-deduction arrangements, such as Share Incentive Plans, notes that they cut the earnings on which you can pay National Insurance contributions and may take earnings below the lower earnings limit¹⁹. If earnings fall below the lower earnings limit for two consecutive tax years, a married woman paying reduced rate National Insurance contributions automatically loses the right to that reduced rate, if she is not self-employed in those years¹⁹. The same logic applies to any deduction that lowers the earnings counted for these purposes, so anyone whose pay is near the lower earnings limit should check the effect before signing up. The basics are covered in National Insurance: classes, rates and what it pays for.

Third, Payroll Giving does not remove every reporting duty. Where tax is not deducted through payroll and is due on other income, it must be reported by submitting a Self Assessment tax return²⁰. Payroll Giving donations themselves need no entry on a tax return, because the relief has already been given, but they do not exempt you from filing if you otherwise need to. And when your circumstances change, for example starting a new job after retiring, your employer will need to tell HMRC so they can make sure you are paying the right tax²¹.

Giving in your lifetime or in your will

Charitable giving interacts with inheritance tax in two distinct ways. Lifetime gifts to charity are usually free of Capital Gains Tax: you do not usually need to pay tax on gifts to your husband, wife, civil partner or a charity, whether you are giving property⁷ or personal possessions⁸. On the inheritance tax side, gifts made in your lifetime may need to be reported when someone dies: HMRC's guidance on estates asks about assets given away where there was a loss to the donor, and gifts and other transfers of value on or after 18 March 1986 fall within the reporting rules²². If gifts total more than the nil rate band for Inheritance Tax, the tax is due on the gifts themselves and is paid by the recipients²².

Gifts in your will are treated differently from lifetime gifts. As Which? has explained, unlike donations in your will, lifetime charitable donations could benefit via the Gift Aid scheme²³. A donation left in a will cannot carry a Gift Aid declaration, because the estate's tax position is assessed separately, whereas gifts you make during your lifetime can be topped up by 25p for every £1¹. The rules for gifts and the seven-year rule are covered in gifts and inheritance tax.

For small estates, there is a boundary that limits how much needs to be reported: for an estate to qualify as an excepted estate, specified transfers made within 7 years of death cannot exceed £250,000²⁴. Specified transfers include gifts of cash, household and personal goods, listed shares or securities, and outright gifts of land or buildings to individuals, but not gifts into trust²⁴. Charitable gifts sit alongside these rules rather than inside them, and the thresholds and rates are covered in inheritance tax: thresholds, rates and who pays.

How Gift Aid touches other calculations

Because a Gift Aid donation is treated as made out of pre-tax income, it reduces your adjusted net income, and that figure is used in several other parts of the tax system. In the tax credits system, the grossed-up amount of Gift Aid qualifying donations was an allowable deduction when working out income for tax credits²⁵, alongside pension contributions with their tax relief. The tax credits system has ended, but the same grossing-up principle, adding the basic rate top-up to your donation before deducting it from income, still drives current calculations that use adjusted net income.

At the national level, the scale of the scheme shows up in the public finances: the Scottish income tax outturn statistics for 2024 to 2025 record a Gift Aid adjustment of minus £139 million for Scotland¹⁵, the tax repaid on Scottish donors' gifts. For individuals, the practical points to remember are that Gift Aid donations are grossed up when they reduce your income for these purposes, and that the relief you claim as a higher or additional rate taxpayer is separate, claimed through your tax return¹².

If you are unsure how much tax you paid in a year, and whether it covers your donations, HMRC's checking tool for dividends and savings interest is one starting point, subject to its limits: it requires tax code 1257L and cannot be used if you file a Self Assessment return, have foreign income, or receive Marriage Allowance or Blind Person's Allowance⁹. Otherwise, your payslips, P60 and HMRC online account show the tax actually paid, and how to check your tax code explains what the numbers in your code mean.