Sunday, February 20, 2005

Financial advice for tax returns

Let nobody say that you don't get a variety of topics in this blog ....

Are you a UK tax payer? Do you fill in a tax return? Do you get a rebate? If so, the UK Inland Revenue will ask you whether you wish to donate the rebate to charity.


Supposing your rebate is for £100. If the Inland Revenue gives this money to your nominated charity, they will get £100. Nice.

However, if you pay your rebate of £100 into your bank account, and then give £100 of your taxed income to the same charity, accompanied by a Gift Aid form, they will get £128.20. If you are a higher rate tax payer, you will also get a rebate the following year of (I think) £23. The net effect of the payment on your bank account when the charity gets your money is identical. The gross effect once the tax dust has settled is very non-identical - rather than costing you £100 and giving the charity £100, it costs you £100 (or £77 if you pay 40% tax) and gives the charity £128. Nicer.

Give money from your taxed income - not from a refund of tax that you have already paid. You know it makes sense.

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