The one box you shouldn't be afraid to tick!

Serena Cowdy finds out how a small tick in a box could make a big difference to an organisation in need.

When I'm applying for new financial products or buying products online, opt-in/opt-out tick-boxes become the enemy.

Would I like some over-priced extra insurance? Tick this box, madam! Would I prefer not to be contacted in the future with details of offers and promotions? Please un-tick this box.

And how about having my details passed on to other companies? No? I'll have to find that teeny-tiny box at the bottom of the form, then. Aaah!

No wonder we've all become very suspicious of any extra opt-in clauses on financial documents. However, today I'm going to talk about the one box that we should all be ticking: The one marked 'Gift Aid'.

What is Gift Aid?

In a nutshell, the Gift Aid scheme allows charities to reclaim the basic tax rate (20%) that you have already paid on the money you donate.

The rate reclaimed is calculated on the gross amount of the donation. What's more, the government has agreed to 'additional transitional relief' of 3p for every pound donated until 2011 (to ease the transition of the basic tax rate from 22% to 20%).

All this means that donations which include Gift Aid are worth an extra 28p for every £1 given, at no extra cost to the donor.

And if you're a higher rate tax payer, you can also claim back the difference between basic and higher rate tax in your self-assessment tax return. This means that for every pound you give away, you can actually get 25p back from the taxman, to do with what you like.

So what's the problem?

The thing is, Gift Aid only applies when the charitable giver opts in to the scheme. If you want to make a donation that includes Gift Aid, you have to complete a short extra declaration, saying that you pay enough tax to cover what the charity will reclaim from HM Revenue & Customs.

Many people misunderstand Gift Aid, and think that including it in their donation will mean they end up paying more. Others don't feel they have the time to fill in the extra paperwork - or are simply suspicious of that extra opt-in clause.

Finally, the administration involved in claiming Gift Aid can be prohibitively expensive, especially for small, low-profile charities claiming small amounts.

The Charities Aid Foundation estimates that UK charities are losing over £700 million per year in unclaimed Gift Aid - with just 40% of donors 'Gift Aiding' their donations.

I think there's a very strong case for making Gift Aid an 'opt-out' rather than 'opt-in' initiative, to combat the various problems I've just described. However, at the moment it's up to all of us to make sure Gift Aid is included in our donations wherever possible.

You can find out more about Gift Aid on this page of the DirectGov website.

Under pressure

At the moment, it's particularly important that charitable giving is done in the most effective way possible.

Many charities have been put under enormous financial pressure by the recession, both because of the falling value of their various investments and because donations are beginning to dry up. According to the Charities Aid Foundation, donations made to UK charities have dropped by 11% in the last year.

How to make your donations mean more

As I mentioned, Gift Aid is one way in which your donations can be maximised at no extra cost to you. Here are some others that are well worth considering:

Payroll giving schemes: Give As You Earn and other Payroll Giving schemes allow you to give to any UK charity straight from your gross salary - before tax is deducted.

This means every £10 donated in this way will only cost you £8 (as a basic taxpayer) or £6 (as a higher rate taxpayer). To find out more about Payroll Giving, read this guide on the HMRC website.

Legacy giving: You can leave money (a legacy) to the charity or charities of your choice in your will. Charitable donations in a will are completely free of inheritance tax, and maximise the benefit to the charity at no extra cost to you or your loved ones.

Legacies are the largest single source of voluntary income to UK charities - with many charities receiving almost half of all donations in this way. To find out more about leaving gifts to charity in your will, read this page of the HMRC website.

Gifts of shares, land or buildings: If you give land, property or shares to a UK charity - or you sell them to one at less than their market value - you can claim both Income Tax relief and Capital Gains Tax relief.

The higher rate of income tax currently stands at 40% - and capital gains tax is set at a flat rate of 18% - so substantial savings can easily be made. To find out more about giving shares, land or buildings to charity, read this guide on the HMRC website.

If you'd like to contribute to charity - but don't feel you have the cash to spare - read How to find £100 a month. Good luck!

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