Many tax-paying church members donate things (eg flowers, candles, cleaning supplies, materials for children’s groups, raffle prizes) to the church.
Other supporters may well not claim legitimate expenses incurred in carrying out charitable church activities (eg travel costs*). HMRC does not allow such gifts in kind to be Gift Aided, only money and financial assets (eg gifts by cheques or credit cards).
HM Revenue suggests it would be more tax-effective if the church reimburses the donor for the item(s). Then in a separate subsequent transaction the donor makes a voluntary donation of (all or part of) the reclaimed expense under Gift Aid, so an extra 25% tax reclaim can be made.
- The donor should present the church with the sales receipt or expenses claim, to be entered into the PCC’s expense accounts.
- The PCC should reimburse the donor in cash or by preferably by cheque.
- Then the donor can put the cash into a Gift Aid envelope or similar (with clear identification of the donor’s identity like a G-code).
- The PCC can make a normal Gift Aid tax reclaim.
The key thing is that there must be two clearly separate and auditable transactions shown in the PCC’s accounts. The church must physically reimburse the donor in cash or by cheque – it is not sufficient to make book entries in the accounts following a waiver of expenses.
* Travel expenses include mileage allowances within HMRC limits. Currently for most private cars/vans this is a maximum of 45p per mile for the first 10,000 miles a year. Similarly for motor bikes it is 24p, and for bicycles 20p. So if a church has 5 volunteer drivers who are taxpayers and who drive an average of 50 miles each month for church purposes, they could claim total mileage of 5x50x45p = £112.50 a month in expenses, which if paid and then donated back to the church would yield a tax refund of £28.12, which is equivalent to more than £330 a year.
See HMRC Guidance Notes for more details.