I am struggling to find an answer to the following question regarding Gift Aid. Here are some points of note:
1. Gift aid can only be claimed on tax paid
2. Pension contributions receive tax relief up to 100% of relevant earnings.
So, if an individual earns £50k (relevant uk earnings) and contributes £40,000 into a personal pension, they will receive £10,000 tax relief. This is because their gross pay will be £50,000 but be subject to tax and NI - (the tax element being £7,484.20).
Therefore the relief is more than the actual tax paid, but this is permitted.
However, in this example the person has also contributed to Gift Aid £20,000 and via gift aid, the charity has claimed an additional £5,000 in gift aid.
The rules state gift aid can only be claimed on tax paid and when there is insufficient tax paid, there is a tax charge due to HMRC by the individual (assuming they are insistent on using gift aid and not just opting for a donation without gift aid).
So based on the above, technically speaking they have paid enough tax (£7,484.20 in fact) and the gift aid claim is seeking £5,000 on top of the £20,000 net donation.
However they have also made the pension contribution and there adjusted net income is zero.
In this instance, if gift aid is still valid, you would effectively be receiving tax relief on the same funds twice.
Will this scenario cause an issue with gift aid due to the pension contributions and the adjusted net income?