A charity preparing accruals accounts recognises Gift Aid as income at the same time as the donation it relates to, provided a valid Gift Aid declaration covers that donation, because the tax is then receivable and can be measured reliably. Gift Aid not yet claimed from HMRC at the year end is shown as a debtor, often labelled Gift Aid recoverable. Gift Aid payments from a trading subsidiary follow a different rule and are only accrued where a legal obligation to pay existed at the year end.
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What exactly is the charity recognising?
HMRC’s detailed guidance for charities (Chapter 3) says a Gift Aid donation is treated as made after deduction of basic rate Income Tax in force at the time, and that is the tax the charity can reclaim. On the GOV.UK guide to claiming, that works out at 25p for every £1 an individual donates. The gross gift is the cash received plus the tax, so the Gift Aid is part of the same donation, not a separate grant from HMRC.
For accounting purposes, Gift Aid on individual donations is a non exchange receipt. FRS 102 paragraph PBE34.67 requires such resources to be recognised when received or receivable, unless a specified future performance related condition applies, and paragraph PBE34.69 adds that they are recognised only when their value can be measured reliably. Our guide to recognising donations and grants covers these paragraphs in general.
When does the tax become receivable?
HMRC’s Chapter 3 sets the conditions for reclaiming the tax: the charity must hold a Gift Aid declaration covering the donation, must be able to show it explained the personal tax implications to the donor, and must have an audit trail linking the donation to the donor and the declaration. The donation itself must qualify, so it must not be from a company, through Payroll Giving, or a payment for goods or services, and any donor benefits must be within the limits. The detail is covered in Gift Aid claims by charities.
Once those conditions are met for a donation received in the period, the charity’s right to the repayment exists and the amount follows directly from the donation. In practice that means recognising the Gift Aid in the same period, and in the same income line, as the donation.
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Should unclaimed Gift Aid be accrued at the year end?
Yes, where it relates to qualifying donations already recognised and covered by declarations held. Charities often claim monthly or quarterly, so there is nearly always an unclaimed balance at the year end. HMRC allows a claim to be made within 4 years of the end of the financial period in which the donation was received: the tax year for a trust, and the accounting period for a charitable company or CIO. The time limit does not delay recognition; it simply means the debtor will be collected later.
Two practical checks before booking the accrual:
- Quality of declarations. If an internal review or an HMRC audit has found gaps in declarations or the audit trail, only accrue for donations that will clearly support a claim.
- Collectability. HMRC says Gift Aid payments are made by BACS within 4 weeks of an online claim or 5 weeks of a postal claim on form ChR1, so a debtor that is many months old suggests claims are not being made.
What about declarations obtained after the year end?
HMRC’s guidance allows a donor to make a declaration in advance, at the time of the gift, or at any time afterwards within the normal time limit, and a declaration can cover donations made in the previous four years. That creates an accounting question when a campaign after the year end collects declarations for donations received before it.
FRS 102 paragraph 32.2 distinguishes events after the reporting period that give evidence of conditions at the year end from those that reflect conditions arising afterwards. A declaration made after the year end is a new act by the donor, so the more prudent reading is that it is a non adjusting event: recognise the Gift Aid in the period in which the declaration is obtained, and disclose the amount if material. Record the policy chosen and apply it consistently. See events after the reporting period for the general rules.
Which fund does Gift Aid belong to?
Because HMRC treats the donation as made net of basic rate tax, the Gift Aid is part of the donor’s gift. It is therefore logical to credit it to the same fund as the donation: Gift Aid on a donation to a restricted appeal goes to that restricted fund unless the appeal wording says otherwise. Charities that want the tax to be unrestricted should say so clearly in the appeal. See restricted, unrestricted and endowment funds.
How do special cases work?
Retail Gift Aid
Where a shop sells goods as agent for the donor, HMRC’s standard method requires the charity to write to the donor after the sale with the net proceeds and allow at least 21 days for them to ask for the money before treating it as a donation. The proceeds and the Gift Aid on them only become donation income once that period has passed. Our guide to the Retail Gift Aid Scheme covers the methods.
Gift Aid Small Donations Scheme
Top up payments under the small donations scheme need no declaration but must be claimed within 2 years of the end of the tax year in which the donations were collected, and the charity must also claim Gift Aid in that tax year. The claim cannot exceed 10 times the Gift Aid claim. Accrue only to the extent these conditions are met at the year end.
Oral declarations
HMRC’s guidance says that if a donor who made an oral declaration cancels within 30 days of being sent the written statement, the cancellation has retrospective effect. Where significant sums depend on oral declarations made shortly before the year end, consider whether the full amount is reliably receivable.
Payments from a trading subsidiary
The FRC’s basis for conclusions to FRS 102 explains that a Gift Aid payment from a subsidiary to its parent charity is a distribution for company law purposes, so it is not accrued unless a legal obligation to pay exists at the reporting date, and a board decision taken before the year end is not enough. Paragraph 29.14A lets the subsidiary recognise the tax effect where payment within nine months is probable. The parent’s side is covered in consolidating a trading subsidiary.
How does this work in practice?
Illustration only. A charity with a 31 March year end receives £80,000 of individual donations in the year. Donations of £60,000 are covered by valid declarations. It claimed Gift Aid on £48,000 during the year and £12,000 of covered donations is still unclaimed.
| Item | Amount |
|---|---|
| Donations received | £80,000 |
| Gift Aid on £60,000 covered donations at 25p per £1 | £15,000 |
| Total donation income | £95,000 |
| Of which Gift Aid claimed in year (on £48,000) | £12,000 |
| Gift Aid recoverable at year end (on £12,000) | £3,000 |
In May the charity writes to donors and obtains declarations covering a further £5,000 of last year’s donations. On the prudent policy above, the £1,250 of Gift Aid is recognised in the following year.
What if HMRC later disallows a claim?
If an HMRC review finds that declarations or records do not support Gift Aid already claimed, the charity may have to repay it. FRS 102 paragraph 21.4 requires a provision where there is a present obligation from a past event, repayment is probable and the amount can be estimated reliably; see provisions and contingencies.
What mistakes come up most often?
- Recognising Gift Aid only when HMRC pays it, so income moves between years.
- Accruing Gift Aid on all donations, including those with no declaration or from companies.
- Crediting Gift Aid on restricted appeal donations to general funds without checking the appeal wording.
- Accruing a subsidiary’s Gift Aid payment on the strength of a board minute alone.
- Letting the Gift Aid debtor build up for years, close to the 4 year claim limit.
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Related Accountapedia entries
- Gift Aid declarations: what donors need to know
- Gift Aid payments from a trading subsidiary
- Can a restricted fund be in deficit
- Recognising legacy income in charity accounts
- Can a sole trader claim charity donations
Sources
- GOV.UK: Chapter 3 gift aid
- GOV.UK: Claim gift aid
- Financial Reporting Council: Frs 102
- GOV.UK: What you can claim it on
- GOV.UK: How to claim
- GOV.UK: Small donations scheme
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.