Gift Aid on zakat and Ramadan giving: how it works in the UK

Ramadan is when most British Muslims do most of their giving, and a lot of it goes out with the Gift Aid box unticked. That box is free money for the charity. It costs you nothing, and it’s one of the few times HMRC sends money the other way.

How Gift Aid works

When you give to a charity and make a Gift Aid declaration, the charity can claim back the basic rate tax you’ve already paid on that money. That works out at 25p for every £1 you give. Give £100 and the charity receives £125.

You don’t fill in anything with HMRC. You tell the charity, usually by ticking a box or signing a short form, and it does the claiming. One declaration can cover future donations to that charity, and donations from the last four years.

Who can tick the box

You need to have paid enough UK Income Tax or Capital Gains Tax in the tax year to cover what the charity claims. The tax year runs from 6 April to 5 April.

The rule of thumb is that your Gift Aided giving shouldn’t be more than four times the tax you paid that year. Pay £1,000 in tax and you can Gift Aid up to £4,000 of donations.

If you tick the box without having paid enough, HMRC can ask you to pay back the difference. If your tax drops, for example you stop work or move abroad, tell the charities you give to.

You don’t need a job. Tax on a pension, on savings interest above your allowance or on a share sale all counts.

What Gift Aid can’t cover

HMRC’s rules mean a charity can’t claim Gift Aid on:

• money from a company, even your own company
• money you collected from other people, such as family zakat you’re passing on
• payments for something in return, such as a ticket, a meal or a raffle entry
• donations through Payroll Giving, which already come out of your pay before tax
• charity vouchers, such as CAF vouchers, which already had the tax relief
• gifts of shares

The family point catches people out in Ramadan. If your parents hand you their zakat to send with yours, the charity can’t add Gift Aid to their part. They can give it themselves and make their own declaration.

Gift Aid and your zakat

Gift Aid works on zakat, sadaqah, lillah and zakat al-fitr, provided they go to a registered UK charity and the money is your own.

The top-up is not part of your zakat. You owe 2.5% of your qualifying wealth, and that’s what you have to give. The 25p is tax HMRC returns to the charity. So if your zakat is £800, give £800. The charity then gets £1,000, and the extra £200 is a bonus for the people it helps, not a discount for you.

Zakat can only go to the groups of people entitled to it, so charities that collect it usually keep it apart from other donations. If you want your gift to count as zakat, say so when you give.

You can work out what you owe with our zakat calculator.

If you pay higher rate tax

Gift Aid only claims back the basic rate. If you pay tax at a higher rate, you can claim the difference for yourself, either through your Self Assessment tax return or by asking HMRC to adjust your tax code.

On a £100 donation, which becomes £125 with Gift Aid:

Scotland sets its own Income Tax bands, so the figures differ there.

You can also claim relief on this year’s donations in last year’s tax return, as long as you file it by the deadline. That helps if you paid higher rate tax last year but won’t this year.

Some people give the higher rate refund on to charity as well. That’s a choice, not a rule.

Small cash donations at the mosque

Mosques that are registered charities can claim a top-up on small cash or contactless donations of £30 or less without a declaration, through the Gift Aid Small Donations Scheme. The limit is £8,000 of small donations a tax year, which brings in up to £2,000, and there are conditions. It’s worth asking whether your mosque uses it, especially in Ramadan, when the buckets fill up.

Zakat al-fitr

Zakat al-fitr should be paid before the Eid prayer, for yourself and for each person you’re responsible for, such as your young children. The Hanafi school allows it to be paid in money, and UK charities publish a set amount each year.

If you pay it from your own money to a registered charity, Gift Aid can apply in the usual way. Pay it in good time, because the charity needs to get it to people before Eid.

Before you give

• Tick the box only if you’ve paid enough tax this year.
• Give your own money, and let family give theirs.
• Say whether it’s zakat, sadaqah or lillah.
• Keep receipts if you’ll claim higher rate relief.
• Work out your zakat before Ramadan, so the last ten nights are for giving, not arithmetic.

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