{"id":11968,"date":"2024-03-06T11:19:42","date_gmt":"2024-03-06T09:19:42","guid":{"rendered":"https:\/\/seoblog.taxback.com\/?p=11968"},"modified":"2024-03-06T17:06:11","modified_gmt":"2024-03-06T15:06:11","slug":"charitable-donations-ireland","status":"publish","type":"post","link":"https:\/\/www.taxback.com\/blog\/charitable-donations-ireland\/","title":{"rendered":"Understanding Charitable Donations and Tax Benefits in Ireland"},"content":{"rendered":"\n

Why do people make charitable donations?<\/h2>\n

The single most common reason cited for making donations to charity is \u2018tax deductions\u2019.<\/p>\n

This doesn\u2019t mean you gain from giving the donation but rather you don\u2019t pay tax on the money you gave away! Or it can mean that the tax you paid on such money is somewhat reduced, i.e. the actual cost of the donation received by the charity is reduced by your tax savings.<\/p>\n

The general driver behind such reasoning is that someone is going to take a portion of your money, and that can either be the government or a charity of your choice (we all like to feel we have some control)!<\/p>\n

While tax savings are a factor in many people\u2019s decision to donate, we must acknowledge that people often just contribute to charity for reasons of religious\/spiritual obligation, i.e. they wish to support the work of an organisation\/church or they feel obliged to make donations by reason of their faith.<\/p>\n

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Surveys have proven that givers are happier than non-givers and in general we all like to feel we are making a contribution! In a time when we have so little control over many of our outgoings (taxes, mortgage payments, utility bills, etc.), charitable contributions are still something we can control, i.e. we decide when to give, how much to give, and who to give to!<\/p>\n

Tax position \u2013 Ireland – pre 1 Jan 2013<\/h2>\n

For donations made by individuals the relief available differed between PAYE taxpayers (employees) and those required to\u00a0submit annual tax returns<\/a>\u00a0(i.e. self-employed people, those with rental properties<\/a>, investment income, company directors etc.).<\/p>\n

PAYE Taxpayers<\/h2>\n

For PAYE taxpayers, the relief was allowed on a \u201cgrossed up\u201d basis and was granted to the charity rather than to the individual making the donation. For example, if an individual who paid tax at the higher rate of 41% (or 40% from 2015) gave a donation of \u20ac250 to an approved charity, that charity was entitled to claim back the tax which had been applied to this income before it was received by the individual, i.e. the individual needed to earn \u20ac424 gross in order to have net income of \u20ac250 (ignoring PRSI and USC) to make such a contribution.<\/p>\n

Tax at 41% was applied to the \u20ac424 (\u20ac174) via payroll and the charity was therefore entitled to claim this amount back from Revenue.<\/p>\n

The net amount received by the charity differed depending on whether the individual was taxable at the standard (20%) or the higher (41% pre 2015 and 40% thereafter) rate.<\/p>\n

The table below illustrates the net difference to the charity for an individual making a contribution of \u20ac250:<\/p>\n\n\n\n\n\n\n\n
Higher Rate Taxpayer<\/strong><\/td>\nStandard Rate Taxpayer<\/strong><\/td>\n<\/tr>\n
Individual donates
\n\u20ac250 take-home pay<\/td>\n		Individual donates
\n\u20ac250 take-home pay<\/td>\n<\/tr>\n
Charity applies to Revenue<\/td>\nCharity applies to Revenue<\/td>\n<\/tr>\n
Charity receives additional
\n\u20ac174 from Revenue<\/td>\n		Charity receives additional
\n\u20ac62.50 from Revenue<\/td>\n<\/tr>\n
Total amount received
\nby Charity \u20ac424<\/td>\n		Total amount received
\nby Charity \u20ac312.50<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The individual giving the donation in each of the above scenarios doesn\u2019t receive any personal benefit from the donation but knows that when they make a contribution, the charity will receive a higher amount. In some cases, people may factor this into their decision in relation to the amount they contribute.<\/p>\n

Self-Assessed Taxpayers<\/h2>\n

For these individuals, the relief was very different. There was no grossing up arrangement and instead they were entitled to claim relief<\/a> on their annual tax return. The amount donated was deducted from the individual\u2019s taxable income on their tax return thus reducing their tax bill, i.e. they were essentially not taxed on the income they no longer had.<\/p>\n

In these circumstances, the amount received by the charity was not affected by the taxpayer\u2019s tax rate.<\/p>\n

The table below illustrates how the relief worked for such individuals:<\/p>\n\n\n\n\n\n\n\n
Higher Rate Taxpayer<\/strong><\/td>\nStandard Rate Taxpayer<\/strong><\/td>\n<\/tr>\n
Individual donates
\n\u20ac250 gross earnings<\/td>\n		Individual donates
\n\u20ac250 gross earnings<\/td>\n<\/tr>\n
Individual claims relief
\non tax return<\/td>\n		Individual claims relief
\non tax return<\/td>\n<\/tr>\n
Individual\u2019s liability is
\nreduced by \u20ac102.50<\/td>\n		Individual\u2019s liability is
\nreduced by \u20ac50<\/td>\n<\/tr>\n
Total amount received
\nby Charity \u20ac250<\/td>\n		Total amount received
\nby Charity \u20ac250<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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Tax position in Ireland from 1 Jan 2013<\/h2>\n

With effect from 1 January 2013, the above changed and in fact the scheme for relief for charitable donations has been simplified considerably.<\/p>\n

There is no longer any distinction between PAYE taxpayers<\/a> and Self-Assessed taxpayers and the relief in respect of charitable donations will in all cases be refunded to the charity.<\/p>\n

Relief will now be granted at the new blended rate of 31% rather than 20% or 41% (40% from 2015) as above. An annual limit of \u20ac1 million per individual that can be donated under the scheme is also being introduced.<\/p>\n

Charities will be required to obtain certificates from their donors confirming their PPS numbers, the eligibility of the donation, and the fact that the tax they will pay for the year will be at least equal to the relief due to the charity.<\/p>\n

As part of the simplification process, provision is being made for an enduring certificate which will last for up to five years and can be completed by a donor in lieu of an annual certificate.<\/p>\n

\"\"<\/p>\n

Effect of changes for individuals<\/h3>\n

For PAYE taxpayers there will be little impact \u2013 such individuals never obtained any personal benefit (perceived or otherwise) from making a charitable donation.<\/p>\n

For Self-Assessed taxpayers there is a difference. The tax relief is not lost but rather it is being granted in a different manner. As the relief for such taxpayers is now being granted on a grossed-up basis, some calculations may need to be done in order for taxpayers to be clear in advance of the making of a donation.<\/p>\n

There is still a benefit for such people in making donations. Remember, no one ever really made a financial gain from a donation. The perceived gain arose via the fact that an individual did not pay the tax on the income that they donated, i.e. the income they no longer had.<\/p>\n

Some examples:<\/strong><\/p>\n\n\n\n\n\n\n\n\n
Old Regime<\/strong><\/td>\nNew Regime<\/strong><\/td>\n<\/tr>\n
Higher Rate Taxpayer<\/td>\nHigher Rate Taxpayer<\/td>\n<\/tr>\n
Donates \u20ac500<\/td>\nDonates \u20ac295<\/td>\n<\/tr>\n
Tax Liability
\nreduced by \u20ac205<\/td>\n		Tax Liability
\nreduced by 0<\/td>\n<\/tr>\n
Net cost to
\ntaxpayer \u20ac295<\/td>\n		Net cost to
\ntaxpayer \u20ac295<\/td>\n<\/tr>\n
Net donation received
\nby Charity \u20ac500<\/td>\n		Net donation received
\nby Charity \u20ac427<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Taking the above example, we\u2019ve worked through the old and new regimes to illustrate how a taxpayer may calculate how much they should contribute. Clearly, in the above example, while the taxpayer\u2019s net cost remains unchanged at \u20ac295, the charity has lost from old to new regime.<\/p>\n

The following example illustrates the position for a standard rate taxpayer:<\/strong><\/p>\n\n\n\n\n\n\n\n\n
Old Regime<\/strong><\/td>\nNew Regime\u00a0<\/strong><\/td>\n<\/tr>\n
Standard Rate Taxpayer<\/td>\nStandard Rate Taxpayer<\/td>\n<\/tr>\n
Donates \u20ac500<\/td>\nDonates \u20ac400<\/td>\n<\/tr>\n
Tax Liability
\nreduced by \u20ac100<\/td>\n		Tax Liability
\nreduced by 0<\/td>\n<\/tr>\n
Net cost to taxpayer
\n\u20ac400<\/td>\n		Net cost to taxpayer
\n\u20ac400<\/td>\n<\/tr>\n
Net donation received
\nby Charity \u20ac500<\/td>\n		Net donation received
\nby Charity \u20ac580<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Taking the above example, it is clear that if the taxpayer is a standard rate taxpayer, the charity will gain under the new regime. If one were to assume that those making charitable donations were in equal measures standard rate and higher rate taxpayers, we would conclude that the net effect for charities will be neutral.<\/p>\n

The following illustration may be helpful if the donor wishes to protect the net income of the charity:<\/strong><\/p>\n\n\n\n\n\n\n\n\n
Old Regime<\/strong><\/td>\nNew Regime<\/strong><\/td>\n<\/tr>\n
Higher Rate Taxpayer<\/td>\nHigher Rate Taxpayer<\/td>\n<\/tr>\n
Donates \u20ac500<\/td>\nDonates \u20ac345<\/td>\n<\/tr>\n
Tax Liability
\nreduced by \u20ac205<\/td>\n		Tax Liability
\nreduced by 0<\/td>\n<\/tr>\n
Net cost to taxpayer
\n\u20ac295<\/td>\n		Net cost to taxpayer
\n\u20ac345<\/td>\n<\/tr>\n
Net donation received by
\nCharity \u20ac500<\/td>\n		Net donation received by
\nCharity \u20ac500<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Therefore, if a higher rate taxpayer wishes to ensure that his\/her charity of choice receives a net payment of \u20ac500 it will cost them an additional \u20ac50 in 2013 as compared to 2012.<\/p>\n

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Effect of changes for charities<\/strong><\/p>\n

Will people be less inclined to make charitable donations further to the above changes?<\/p>\n

Most likely not, as tax is not the only driver for people. Also, while it may appear to Self-Assessed taxpayers that there is no longer any benefit from making a donation, it\u2019s clear from the above that there is still tax relief to be claimed<\/a>. It just looks a little different. It is still possible to direct some of your hard earned cash to a charity rather than to the government!<\/p>\n

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