For HMRC's guidance please see http://www.hmrc.gov.uk/individuals/giving/basics.htm
PAYROLL GIVING – donating to charity directly from pay slip or company/private pension
For those that pay tax through PAYE (pay as you earn), you can donate to charity directly from your payslip or company or personal pension before Income Tax has been deducted (but after National Insurance) which means that your donation gets tax relief immediately at the highest rate of tax you pay. Your employers need to have a Payroll Giving Scheme. See http://www.hmrc.gov.uk/individuals/giving/payroll.htm for more information.
If you give a charity assets including land, buildings or shares you may be eligible for tax relief of some kind. See http://www.hmrc.gov.uk/individuals/giving/assets.htm for more information.
GIFT AID – allowing the charity to reclaim tax on your donation
Gift Aid allows charities to reclaim a basic rate of 20% on any donation you make. So for each pound you donate, the charity will receive an addition 25p. However there are some restrictions.
The amount of tax the charity can claim back cannot be more than the amount of tax that you paid in the tax year in which the donation is made. This includes Income Tax, Capital Gains Tax and tax from pensions, interest on savings, investments and rental income.
This only applies to certain charities. They must be based in the UK, the EU, Iceland or Norway. Andthey must be registered by HMRC.
You will need to fill in a Gift Aid Declaration form provided by the charity before they can claim back Gift Aid on a donation.
Gift Aid: Further considerations
Gift Aid can be claimed back on gifts made jointly if you tell the charity how much each of you gives and you must both made a Gift Aid declaration.
If you have not yet submitted your Self-Assessment Tax Return for the previous tax year then you can choose whether to treat the donation as for this or the previous tax year so long as enough tax was paid in the previous year to cover the donation on top of all last year’s donations.
You should inform the HMRC of any Gift Aid donations if you receive age-related Personal Allowance, Married Couple’s Allowance or tax credits as this can affect the amount you receive. When they work out how much Allowance or tax credit to award they will take the amount donated plus the basic rate tax from the total income and use that figure to determine the amount to give rather than just your income.
Other tax exemptions
With Gift Aid the charity can reclaim only at the basic rate of income tax. If you pay tax at a higher rate that the basic rate then you can claim back the difference on your Self-Assessment Tax Return.
The difference in the higher rate compared to the basic rate of tax is claimed on the total value of the donation. E.g. if you pay 45% tax rate and donate £1000 to charity, the value of the donation due to the basic rate of tax (20%) is £1250 and you can claim back the difference (25%) of the total value: 0.25 x £1250 = £312.5.