How does a charity work?

How does UK charity tax work?

• Hi, Can someone please explain to me, in full detail, how the UK charity tax system works? For example, if I want to donate £1 to a charity then how much does the government get? Also, does this differ for different types of charities i.e Sponsorships, Donations etc. Lastly, can the charity claim this money back. I have noticed that there is a gift aid box on many sponsorship cards that I have seen lately. What is this? Thanks very much

• Answer:

  The government only gets any VAT which the charity pays on things it buys. Charities do not pay any form of tax on their profits, but they do pay VAT (like everyone else) on things they buy. Gift Aid is something separate. If you donate £1 to charity and Gift Aid it, the government gives the charity 25p to represent the tax which you will have paid on your income before you made that gift. In that way, anything you give to a charity is effectively given out of gross income. It does not cost you anything for the charity to reclaim this tax, as long as you have paid income tax or capital gains tax at some point in the year.