Tax Effective Giving
The revised Tax Relief Scheme on Donations - how the system operates.
Step 1 - Donor Validation
i) The automated system checks the validity of the PPS numbers on each claim and where there are any invalid PPS numbers the claim is rejected and a reference given to which numbers are invalid. The charity must remove or correct the invalid PPS number(s) and re-submit the claim.
ii) The system checks the status of the tax affairs of each PPSN on the claims and for those PPSNs where the tax affairs of the donor have been finalised and sufficient tax has been paid to cover the amount of the refund the refund is approved for payment. This is marked as a validated refund.
iii) Where no tax has been paid OR the tax amount paid is less than the amount approved for refund, the tax actually paid is approved for refund and the balance marked for refund if for any reason the donor later pays additional income tax related to the tax year in which the donation was made. These situations will be captured in the “sweepback” procedures which continue for up to four years on such validated refunds.
iv) If the donor’s tax affairs have not been finalised for any reason (most commonly if they are self-assessed since they don’t file their claims until the end of October (or November if using ROS)) they are marked as un-validated claims that are awaiting full donor compliance. The “sweepback” procedures regularly check the un-validated claims and where donors have since finalised their tax affairs and paid sufficient or some tax then the claims are approved for full or partial refund as appropriate.
Step 2 - Charity Validation
The system checks that the Charity is fully tax compliant before issuing refunds.
v) If the charity is tax compliant the system processes the refunds due and payment issues (usually within four days).
vi) If the charity is not tax compliant the payment will be held and a notice sent to the ROS inbox of the charity alerting them to the problem and what is needed to resolve it. Possible reasons for payments being held include:
The charity has not filed its P30 (PAYE and PRSI return) by the due date – P30’s must be filed every month if they have not then the refund will be held and a notice will issue to the ROS inbox saying why the refund is being held and what the charity needs to do.
The Charity has not yet provided their Bank Details under the Charity Donation Scheme (CDS) heading in ROS. NB the fact that the Charity is registered for ROS does not mean that your Bank Details are automatically in the charity refund section in ROS – you must enter them yourself by going to Manage Payments Section, then CDS heading, where there is a section Enter Bank Details. You will need your BIC and IBAN numbers for this. If the system does not have the Charity’s Bank Details then it cannot make the payment.
There are any other outstanding tax liabilities for the Charity – again details will be notified via ROS.
Note: Since this is the first time that charities have been in a position where they are receiving income tax refunds via the Revenue Online System it will be their first experience of having a refund withheld until an outstanding return has been made or other income tax liability is settled. The system is set up to reject a refund payment if there is an outstanding tax return (e.g. P30) or other tax liability due. This means that there is a clean-up going on re historical information that could be causing a hold-up in payments for some charities.
1. Changes to the tax relief on donations to charities effective from 1st January 2013 – operational details and forms now available
ICTR is delighted to provide details on the simplification of the tax relief scheme on donations to charity that we achieved in Budget 2013 and subsequent Finance Act . The operational details were announced by officials from the Charities Unit in the Revenue Commissioners at a briefing session arranged by ICTR at which the new forms CHY 3 and 4 were launched (27th June 2013).
Key Features of the Revised Scheme:
N.B. The changes summarised below only apply to qualifying donations to eligible charities and approved bodies from the 1st January 2013 - all previous donations up to and including the 31st December 2012 are still subject to the old rules – see Section 2 below for details). There is no change to the Corporate tax relief, companies continue to treat donations as a normal business expense and there is no upper limit on the amount that can be donated.
1: The tax refund for donations from all donors regardless of their tax status (PAYE or Self-assessed) will now go to the charity in all cases at a blended rate of 31%. Charities no longer need to ask donors about their tax affairs and the only reason that a refund claim will be rejected is if the donor has not paid sufficient tax in the relevant year to cover the reclaim or inaccurate details have been supplied.
2: The qualifying donation threshold remains at €250 and must still meet the condition of being given “at arms-length with no strings attached” i.e. there can be no benefit to the donor.
3: The tax relief will now be given at a blended rate of 31% regardless of the rate of tax paid by the donor and this will be on a grossed up basis.
Example: A donation of €250 will be grossed up at 31% as follows: €250*100/69 = €362.32 so the tax refund will be €362.32-€250 = €112.32. On this basis the tax refund on a donation of €500 will be €224.64 and on €1,000 it will be €449.27.
4: An annual limit of €1million per individual can be relieved under the revised scheme and donations under the scheme are no longer subject to the higher earner restriction because the tax refund goes to the charity in all cases, not to the donor.
5: In the case of a donor who is “associated” with the charity (employee, board member, member etc.) the limit for tax relief on donations to a maximum of 10% of annual income continues to apply.
6: Donors can sign the approved certificate/form to cover qualifying donations over a five year period using the new CHY3 “enduring” form or if they prefer for one year using the CHY4 annual form. In each case they are giving the charity permission to claim a tax refund on the donation/donations of €250 or more during the period covered by the form.
7: Each form requires that the donor fills in their PPS number and signs the declaration form which the charity must retain for audit purposes, subject to data protection rules on security. However, renewal of both forms has been made much easier and can be done by donors online, by phone (recorded message NOT a note of the call), by text, email or letter removing the need for donors to send charities signed forms every year. The charity is required to maintain a verifiable record of renewals that may be audited by Revenue at any time.
8: The filing of tax refund claims by charities on all donations from 1st January 2013 will be made using the Revenue Online Service (ROS) beginning in January 2014. All charities that have made tax refund claims under the scheme in the last four years will automatically be issued with a ROS number in the coming months.
9: The first tax refunds will not be made before April 2014 and the timing of the refunds for particular donors will depend on when their annual tax liability has been settled with Revenue – in the case of PAYE donors that will usually be the end of February each year and for self-assessed donors the end of November. The online system will flag the tax status of donors and once the tax is received the refund to charities will be automatic.
10: The new ROS system is a work in progress but will be ready to handle charity tax refund claims from the 1st January 2014. Further details will be communicated to charities over the coming months.
2. Tax Relief on donations up to and including 31st December 2012
Since the 6th April 2001 tax relief is available on donations of €250 or more in any one tax year to eligible charities from both individual and corporate donors. Tax relief is applied to these donations at the donors' marginal rate of tax (currently 41%). In most cases there is no upper limit on the amount of the donation. However, in the case of donors where there is an association between the donor and the charity(s)/approved body(ies) at the time the donation is made, (e.g. where the donor is an employee or member of the charity/approved body), then relief will be restricted to 10% of the total income of the individual for the relevant year of assessment. It is also important to note that the tax relief scheme on donations to charity (S848A Taxes Consolidation Act 1997) is included in the list of tax relief schemes subject to the new restriction on the use of tax relief by high earners (S485C Taxes Consolidation Act 1997), which came into effect in January 2007. Under this restriction high earners are limited to annual total tax relief of €250,000 or 50% of gross adjusted earnings, whichever is the greater. Unused tax relief can be rolled over to subsequent years. In January 2006 the income tax relief scheme on donations of money was extended to cover gifts of publicly quoted shares. However, in this case the donor has to choose between Capital Gains Tax (CGT) relief OR Income Tax relief - they cannot claim both. If the donor chooses to claim income tax relief the procedure is the same as for gifts of cash.
How the tax relief is applied
How the tax relief is applied depends on which taxpaying category the donor falls into:
- In the case of PAYE only taxpayers, the tax relief is applied at the marginal rate and is paid directly by the Revenue Commissioners to the Eligible Charity or Approved Body on receipt of the relevant appropriate certificate (an official form that is completed by the donor and the charity receiving the donation).
- Individual taxpayers on self-assessment benefit directly from relief at the marginal rate by claiming the donation as a tax-deductible expense.
- Corporate donors simply claim a deduction for the donation as if it were a trading expense.
So in the first case the tax relief is paid directly to the Charity whilst in cases two and three the donor receives the tax relief. The following examples will help to illustrate how the tax relief works in practice.
Who Claims the Tax Relief
Example 1 PAYE Donor
Tom is a PAYE taxpayer who donates €250 to his favourite eligible charity over the course of the tax year by monthly standing order of €20.83. His marginal rate of tax is 41%. At the end of the year Tom fills in a form sent to him by the charity giving details of his donation together with his PPS No. The charity then uses the form to claim back the tax which Tom has already paid on this €250 directly from Revenue - €250x100/59 = €424 less the original donation of €250 = €174 (tax associated with the donation) bringing the total value of the donation to the charity up to €424. Mary, Tom's sister is also a PAYE taxpayer who donates €250 to her favourite charity but she pays tax at the standard rate of 20%. Mary completes and sends off her form to the charity, as above, and they claim the tax she has already paid on the €250 directly from Revenue. In this case the calculation is €250x100/80= €313 less the original donation of €250 = €63 which is the tax associated with the donation. Mary's donation of €250 is worth €313 to the charity.
Example 2 Self-assessment Donor
Siobhan is self-employed and makes tax returns on a self-assessment basis. Her marginal rate of tax is also 41%. Siobhan makes a donation of €250 in cash and publicly quoted shares valued at €1000 to her favourite charity. In the case of the shares Siobhan opts to pay the capital gains tax of 20% (€250) and claim the income tax relief (41%). Siobhan receives a receipt from the charity and when she fills out her tax return she deducts the total donation of €1250 (cash €250 and shares valued at €1,000) from her taxable income thus reducing her tax bill by €513-CGT €250= €263. In this case, it is Siobhan who benefits directly from the tax relief.
Example 3 Corporate Donor
XYZ Ltd makes a company donation of €250 to their favourite eligible charity and receives a receipt. The company can claim a deduction for the donation as if it were a trading expense. The company pays corporation tax at 12.5% so their corporation tax bill is reduced by €250x12.5%=€31. The company gets the benefit of the tax relief in this case.
What if the donor pays tax through both PAYE and self-assessment?
Where a person is PAYE but also has some (however small) self-assessed income, that person is considered a "chargeable person" and therefore is entitled to relief for the donation at the marginal rate of tax. In other words, they operate as self-assessed donors as in example two above. If such donors are included (in error) in the claim forms submitted by a charity, Revenue Claims section will disallow them and reduce the overall claim amount accordingly. This can delay the repayment of claims so it is in the interests of charities to try to establish with donors who complete the "Appropriate Certificate" that all of their income in assessed under PAYE only before submitting their annual claims form.
3. Conditions attached:
Tax relief can only apply to donations which:
- are €250 or greater in one year (can be cumulative)
- are in the form of money or shares, or a combination of money and shares
- are not repayable
- do not confer a benefit on the donor or any person connected with the donor, and
- are not conditional on, or associated with, any arrangement involving the acquisition of property by the charity or approved body.
4. What is an “Eligible Charity” and how do you apply?
The tax relief detailed above is only available for donations to Eligible Charities or Approved Bodies.
What does this mean?
An Eligible Charity is defined by the legislation as any charity within the State, which is authorised in writing by the Revenue Commissioners for the purpose of this Scheme. In order to qualify for eligible charity status, the charitable organisation:
- must have a charitable tax exemption number or CHY No. and
- must have been in operation for at least two years since being granted the CHY No.
- must make a formal application to Revenue on the form provided - Form of application to Revenue for Authorisation as an “Eligible Charity” for the purposes of Section 848A of the Taxes Consolidation Act 1997(donations to eligible charities).
- must meet any other conditions that Revenue may require from time to time
Authorisations issued under the scheme will be valid for periods ranging up to five years and can be renewed upon expiry by completing a fresh application. Approved Bodies are educational and other named organisations - details of which are available on the Revenue website.
Where do you get these forms?
The Revenue forms referred to in this document are available on the Revenue website: http://www.revenue.ie. Alternatively, you can get a form from: The Office of the Revenue Commissioners, Charities Section, Government Offices, Nenagh, Co. Tipperary Tel: LoCall 1890 666333 Or 067-6763400 Email: firstname.lastname@example.org The Revenue website also posts up-to-date listings of charities who have a CHY number and separate listings of both Approved Bodies and Charities that have been granted Eligible Charity status.