Can Gift Aid provide the funding bonus academies need?

The education secretary wants to see more academies, so that in future management by an autonomous trust becomes the single model for governing schools.

Academy trusts are classified as exempt charities for tax purposes, and one of the benefits they can tap into is Gift Aid. This is a simple but effective method for boosting any voluntary donations received.

But are existing academies taking full advantage of Gift Aid, or could they be missing out on as much as 25% in additional income? If you're not yet aware of the benefits, we'll bring you up to speed.

How does Gift Aid work?

Gift Aid is a basic form of tax relief. This allows a charity to reclaim from HMRC the basic rate of income tax that a donor pays on their charitable donation.

There are some conditions for Gift Aid to apply:

• The donation must be in the form of money
• It must be made by an individual UK taxpayer
• It must be an outright gift and not a payment for goods or services.

For the donation to qualify for Gift Aid, the donor must complete a Gift Aid Declaration. This is a confirmation that the donor has paid, or will pay, enough income or capital gains tax to cover the amount of Gift Aid that the charity reclaims from HMRC.

What does this add up to in value for academies and trusts? Gift Aid enables you to claim a 25p for every £1 you receive – boosting donations to your school by 25%.

How does an academy set up for Gift Aid?

As an academy, you must first register with HMRC as an exempt charity. Because you're classified as exempt, you don't have to register with the Charity Commission.

HMRC will provide you with a special charity reference number and let you know the date from which your entitlement to Gift Aid relief begins.

You can take donations before you apply to HMRC, but you cannot claim Gift Aid tax relief until after HMRC has issued you with a charity reference number. You also can't claim for donations received before your entitlement date.

To use Gift Aid to boost your funding, you must follow certain rules:

Keep accurate records of each donation, including:

• The amount of the donation
• The date of the donation
• The individual donor's name and address
• Their Gift Aid declaration.

How do you claim Gift Aid?

You can submit Gift Aid claims at any time, up to four years after the end of your accounting period, or tax year, in which the donations were made.

You can submit your claim via the HMRC Charities online service; you include a Gift Aid donations schedule with recorded details of amounts, donors and dates (see above).

Normally HMRC processes claims and issues payment within four weeks.

What does and doesn't qualify for Gift Aid?

If you've set yourself up for claiming Gift Aid, then you need to know what you can claim this tax relief on.

The good news is that Gift Aid applies to a broad range of charitable donations for fund-raising, such as:

• Special events
• Non-uniform days
• Sponsorship
• Appeals for buildings and equipment.

However, you must also be careful not to claim Gift Aid for certain things which may be connected to fundraising. These include:

• Admissions to events
• Payments for raffles or lottery tickets
• Payments for jumble sale items or second-hand books.

These would count as payments for goods or services, and therefore Gift Aid wouldn't apply to them.

Even small donations can make a difference

For both single-school and multi-academy trusts, there's a simple way to claim Gift Aid style payments on small cash or contactless card donations.

This is the Gift Aid Small Donations Scheme (GASDS), and it's designed to enable you to claim for donations without collecting personal details or a Gift Aid declaration from your donors.

Like regular Gift Aid, HMRC will pay back 25% of the total value of donations you receive.

GASDS applies to payments of £30 or less, and it's ideal in donation situations where you're taking cash or contactless payments.

• Single-school trusts can claim up to £8,000 in a tax year
• MATs can claim up to £8,000 per school if the individual school qualifies as a community building.

You can only claim for GASDS if you've made a claim for Gift Aid in the same tax year, and your Gift Aid claim is worth at least 10% of your GASDS claim.

Is Gift Aid worth it?

The short answer is YES – according to HMRC, £560 million in Gift Aid goes unclaimed each year.

This is money your school could benefit from, and it all adds up. Think about the money you've raised through fundraising and charitable events over a year, then add 25% to that total.

That's 25% extra that you can earn without any additional activity apart from raising awareness about the benefits of Gift Aid itself.

Remember, too, that with regular Gift Aid claims, these may apply for up to four years from the end of your accounting period, so providing you've registered for Gift Aid, you could have a potential pot of additional funding waiting for you.

How easy is it to manage Gift Aid?

Like other forms of income, you can only maximise the benefits of Gift Aid if you're recording and keeping track of your donations and what you can claim for.

With Pebble's Tali income management software, it's easy to manage and review all the details of your Gift Aid donors and automatically recognises the contributions on which you can claim that 25%.

And when it comes to making your claim, with a simple click you'll get a complete report for submission to HMRC.

If you want to get up and running with Gift Aid, we've got a starter pack that tells you everything you need to know, and for a quick, insightful summary, take a look at our video.

If you want to talk to us about Gift Aid and our Tali software, you can contact the Pebble team today.