Give to charity not the taxman
Charity donations sent via text message will be free from VAT, under a new framework announced this week (27/07/2009).
In the past, only text donations to big charitable events such as Comic Relief had VAT waived. However, the Mobile Data Association (MDA), a not-for-profit trade association, has introduced new guidelines that will see charities receive an additional 15% on donations sent from a mobile phone.
The new framework allows mobile phone users to donate up to £10 by either sending a text message to their charity of choice (via a number know as a short code), or by using Payforit, a mobile payment service.
The framework has already been adopted by many of the main mobile network operators in the UK, including 3, Orange, T-Mobile, O2 and Vodafone. These operators will now pass the VAT they normally charge on text messages directly on to the charitable organisation.
However, in order for the VAT to be waived, donations must be sent to a charity’s short code – this is a dedicated number used for charity donations only. A short code will contain five digits beginning with the numbers 70.
Martin Ballard, operations director of the MDA, says: “Mobile is a powerful way for people to support and donate to charities and this development makes the whole process clearer for all parties.”
Other ways you can reduce your tax bill through charitable giving:
1. Gift Aid
While cash-donation boxes remain a common sight in shops and along the high street, this is not the most tax-efficient way to give to charity.
Gift Aid is a tax-relief on donations, meaning the government treats the money as if the donor had already deducted basic rate tax from them. The charity can then reclaim this tax to increase the value of a donation. It also adds a further three pence for every pound donated.
If you are a basic-rate taxpayer donating through Gift Aid then every £10 you donate will mean £12.80 for the charity. That’s an extra £28 for every £100 you donate.
And if you are a higher-rate taxpayer who uses Gift Aid to donate to charities then you can claim higher-rate relief on these payments. All you need to do is enter the donations in the Gift Aid box on your self-assessment return or declare donations on your P810.
When you arrange to give money to a charity - as part of a regular donation or simply a one-off - you are required to give them permission to claim Gift Aid on your donation. This can be done over the phone, but normally the charity will ask you to ‘opt in’ on a form.
2. Give As You Earn
You can also claim tax relief on donation given via a Give As You Earn scheme. However, you cannot use this form of tax-efficient donation as well as Gift Aid on your donation.
With Give As You Earn, your donation is taken directly from your pre-tax salary so the tax is passed on to the charity rather than the taxman.
This type of donation means the money you give goes further for the charity. For example, a £6.41 donation will only cost you £5.
There are four different ways to donate to charity using the Give As You Earn scheme.
* If your employer has a Give As You Earn scheme then all you need to do is inform your payroll department that you want to participate. They will need to know how much you want to donate each month and which charity or charities you wish to give to.
* If your employer doesn’t run a Give As You Earn scheme, then you could set up a Charities Aid Foundation (CAF) charity account. This enables you to pay a set amount of money (the minimum is £10 a month) into a special account. You can then send a cheque to donate money tax-free to any charity you want.
* If you and your colleagues want to fundraise as a group then you could set up a staff charity fund to pool your pre-tax donations.
* Finally, if you want to donate at least £10,000 a year to a charity then you could set up a CAF trust. Your money is invested and any income generated is donated to the charity of your choice. As with other Give As You Earn schemes, the money is taken from your salary pre-tax so your £10,000 will actually only cost you £6,000.
3. Donating assets to charity
If you are a UK taxpayer, then you can claim tax relief on charitable gifts of quoted shares, land, property or other personal assets including art works.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.