Tax, Gift Aid, and Compliance: What Charities Must Know

Compliance is not exciting, but it is the price of being a registered charity. Miss a deadline or a requirement and the Charity Commission can remove you, fines are possible, and donor trust evaporates.

This guide walks through the tax, Gift Aid, data protection, and safeguarding basics every charity needs to know.

Gift Aid: the easiest money charities leave on the table

Gift Aid is a government scheme that gives charities free money from the tax system. A donor gives £80; the government adds £20 (25% of the donation). It is real money, not a tax credit.

Who can claim Gift Aid?

• Registered charities (you need to register with HMRC separately from the Charity Commission; it takes 10 minutes).
• Donors who are UK taxpayers.
• Donations (not grants from trusts or government).

How to set up Gift Aid

1. Register with HMRC (online, takes 10 minutes).
2. Create a Gift Aid declaration form (the Charity Commission has a template).
3. When donors give money, ask them to sign the form (or tick a box if donation is online).
4. Keep the forms for 4 years.
5. Claim quarterly or annually through HMRC online portal.

How much can you claim?

• Small-donations scheme: up to £300/month (£3,600/year) without Gift Aid declarations; charities under £25k turnover can claim this automatically.
• Gift Aid: any amount from declared donors; claim up to 4 years back gifts.
• Combine both: a charity can claim small-donations for small amounts and Gift Aid for larger donations.

For an average donation base, Gift Aid often adds 10-15% to annual income with almost no extra work.

Payroll and employment tax

If you employ staff, you have payroll obligations. These are non-negotiable and penalties for missing them are steep.

Before you hire your first staff member

• Register with HMRC for PAYE (Pay As You Earn) online.
• Set up a payroll (many charities use Xero, FreshBooks, or employ a payroll bureau).
• Decide: salary, pension, benefits.
• Calculate gross vs net pay (tax and National Insurance).

Monthly/quarterly obligations

• Submit payroll data to HMRC on or before the 19th of each month.
• Pay PAYE and National Insurance to HMRC (usually from the payroll package).
• Record in charity accounts.

Annually

• Submit a P60 to each employee (by 31 May).
• Submit P35 (annual summary) to HMRC.
• File year-end payroll data.
• Pay Class 1A National Insurance on some benefits.

Miss a deadline and HMRC charges penalties. The easiest path is to use a payroll bureau (£30-£50/month) and let them handle it.

GDPR: data protection basics

Any charity that holds personal data (names, emails, phone numbers, addresses, donor details) is subject to GDPR. This applies even if you are tiny.

What GDPR requires

• A privacy notice: tell people what data you collect, why, and how you store it. Put this on your website.
• A way to opt out: every email should have an unsubscribe link. Data subjects (people in your database) must be able to ask you to delete their data.
• Secure storage: do not store passwords in a spreadsheet. Encrypt sensitive data. Limit access.
• A data breach plan: if data is leaked, you must notify affected people within 72 hours and the Information Commissioner's Office.
• A Data Protection Officer (DPO) if you are a large charity; smaller charities often assign this to a trustee.

Common GDPR mistakes

• Buying email lists and mailing people who never opted in: not allowed under GDPR.
• Storing passwords in a spreadsheet: breach of security.
• Not having a privacy notice: breach.
• Not letting people unsubscribe: breach.
• Sharing data with third parties without consent: breach.

Safeguarding: protect vulnerable people

If your charity works with children, adults at risk, or vulnerable people, you must have safeguarding policies.

Minimum safeguarding requirements

• A safeguarding policy: what is safeguarding, how you prevent harm, how you report concerns.
• Safer recruitment: DBS checks for anyone working with children or vulnerable adults.
• Training: all staff and trustees should know the safeguarding policy.
• A designated safeguarding lead: one person trustees can contact with concerns.
• An escalation process: if someone reports abuse, you have a clear process for reporting to authorities.

Safeguarding failures are taken very seriously by the Charity Commission. If your charity fails to protect someone and it comes to light, the consequences are severe.

The annual compliance calendar

Every charity needs this calendar. Stick it on the wall.

January

• Pay annual P35 to HMRC (if you have staff).
• Issue P60s to employees (by 31 Jan).
• Review insurance policies; renew if needed.

February-March

• Prepare annual accounts (independent examination or audit).
• Trustee review: reserve levels, restricted funds, year-end positions.

April-May

• File independent examination/audit with the Charity Commission (by 10 months after year-end).
• File annual return with Charity Commission.

June-September

• Review and update safeguarding policy.
• Conduct GDPR audit: what data do we hold, where, and for how long?
• Review conflicts-of-interest register; add any new interests.

October-November

• Plan next year's budget.
• Review restricted fund positions.
• Prepare trustee meeting papers for year-end.

December

• Finalize year-end accounts.
• Gift Aid claim (if not claimed quarterly).
• Plan next year's financial targets.

Tax-exempt trading and VAT basics

Charities benefit from income tax exemption, but not always from VAT. If your charity has significant trading income (selling goods/services), you may owe VAT.

Rules (simplified):

• Pure donations and grants: no VAT.
• Trading income: you may owe VAT if you exceed the VAT threshold (currently £85k).
• Exemptions: some activities (health, education, cultural) can be VAT-exempt.
• Charities can reclaim VAT on supplies they buy.

If your charity has trading income, talk to an accountant about VAT early. Do not wait until the Charity Commission asks.

Compliance feels like bureaucracy, but it is actually protection. Stay on top of it and you protect your charity.

The closing principle

Tax, GDPR, safeguarding, and annual returns are not optional. They are the price of operating as a registered charity. Use a calendar, assign responsibility, and do the work on time. Most charities find that once the systems are in place, it takes only a few hours a month.

This guide is part of our Charity Tax and Compliance hub, where you can explore every practical guide in this area.