Higher-rate and additional-rate taxpayers who donate money to charity could be missing out on millions of pounds in unclaimed tax relief because of widespread confusion about how the tax breaks on charitable giving work, according to new research.
The news also means that charities are likely to be receiving less in donations because the incentives to donate are not well enough understood.
A survey by Brewin Dolphin, the wealth manager, asked 501 people about their charitable giving habits, and an overwhelming 86 per cent of respondents said they did not factor charity donations into their tax planning, and 35 per cent were completely unaware of the tax incentives on offer for charitable donations. These respondents are therefore unlikely to be claiming back any tax relief they are owed.
When people make donations via Gift Aid, for example, the charity is able to claim a basic rate tax relief of 20 per cent. So if somebody donates GBP8, the charity can claim an additional GBP2 to receive GBP10 in total.
However, higher-rate taxpayers are also entitled to claim a tax rebate of 20 per cent by recording the transaction on their self-assessment tax return, or by contacting HMRC, who will amend their tax code to facilitate the tax refund. This means that a higher-rate taxpayer who donates GBP80 can reclaim GBP20 from HMRC.
“The fact that the overwhelming majority of people do not incorporate charitable giving in to their tax planning, and the lack of awareness about the charity tax breaks in general, does raise the possibility that many taxpayers are failing to reclaim up to 25 per cent of their donations in tax refunds” said John Fletcher, Divisional Director, Financial Planning at Brewin Dolphin.
“Clearly there is a great deal of confusion and many people do not know that they must proactively claim the tax relief.”
“It is anybody’s guess how much money may be going unclaimed but given the results or our survey it could easily run into many millions of pounds. It’s a timely reminder for people to record donations in their tax return before the end of the month’s tax deadline.”
Concerns were also raised about charities and transparency, with 51 per cent of respondents saying they could be “more transparent and accountable.”
In addition, while 46 per cent of people said that charities made a “positive difference to peoples’ lives”, a further 44 per cent said that charities “waste a lot of money” while only 6 per cent said they spend money wisely.
According to the survey, the average amount of money given to charity last year was GBP469, with the majority (20 per cent) giving between GBP101 and GBP250.
A further 8 per cent gave nothing, while 9 per cent gave more than GBP1,000.
Most (77 per cent) said they would donate about the same in 2016.
