Charity payment- higher rate tax payer

by **nottheo** on Fri Jan 20, 2012 2:43 pm

Hi. Checking the government advice on payments, it advises the following:
"If you pay higher rate tax, you can claim the difference between the higher rate of tax 40 and/or 50 per cent and the basic rate of tax 20 per cent on the total 'gross' value of your donation to the charity or CASC.

For example, if you donate £100, the total value of your donation to the charity is £125 - so you can claim back:

•£25 - if you pay tax at 40 per cent (£125 × 20%)"
My question is this; if you had paid out of your pre-tax earnings, you would have paid say £125 to the charity and would have saved 40% of that in taxes- ie. would have paid £50 less (£125*40%). So the charity gets £125 and you get £50. Why then, if you are paying out of your post-tax payments, if you donate £100- grossed up to £125, do you only get £25 (£125*20%). So the charity still gets £125 but now you only get half the amount. Am I missing something?

by **section 44** on Fri Jan 20, 2012 3:57 pm

You are missing something.

nottheo wrote:So the charity gets £125 and you get £50.

No. The charity would get £125, you would get nothing. But for the donation, you would have retained £75 and HMRC would have got £50.

nottheo wrote:So the charity still gets £125 but now you only get half the amount.

Because you are not comparing like with like.

by **King_Maker** on Sat Jan 21, 2012 9:43 am

Briefly :

1. You pay £100 to charity.

2. Charity receives £125. This is £100 from you and £25 from HMRC.

For basic rate taxpayers, that's the end of the story.

3. 40% taxpayer can claim a further £25 via his/her Tax Return. So net cost to taxpayer is £75 (£125 - 40% = £75).

If the 40% taxpayer had wanted the NET COST to him/her to have been £100, then the donation should have been increased to £133.34. The charity would have received £166.67 and tax relief would have been £66.67.