If you are a UK taxpayer and make a charitable donation via Gift Aid, the charity can claim an extra 25p for every £1 you give.
This is because the charity is claiming back tax that you have already paid.
If HMRC find out you have not paid enough tax for the charity to claim back, they will come looking for the tax from you directly. If you have not paid any tax, the charity cannot reclaim it.
Gift aid payments can be useful tax planning tools.
Higher or additional rate taxpayers can claim higher rate tax relief for the payments. In Scotland, this could amount to a further 21% or 26% of the grossed-up donation.
If you think you will exceed a higher rate threshold, make a gift aid donation to reduce your tax while being charitable. This is particularly useful if your income exceeds £100.000 and you have begun to lose your personal allowances.
Remember to put your gift aid payment on your tax return to get the higher rate relief.