How is a charity ordinarily funded and what is Gift Aid?

• A. Charities are funded by donations, legacies, grants, and income from activities; Gift Aid is a tax relief allowing donors to increase the value of their donation by reclaiming basic tax.
• B. Charities are funded by government mandates; Gift Aid is penalties.
• C. Charities only rely on corporate sponsorship; Gift Aid is a government grant.
• D. Charities are funded by sale of assets; Gift Aid is a loan.

Answer: (A)

Charities are ordinarily funded from a mix of donations, legacies (money left in wills), grants, and income generated from their own activities. Gift Aid is a tax relief that lets charities reclaim basic-rate tax on eligible donations from HM Revenue & Customs. When a donor who pays basic rate tax makes a Gift Aid declaration, the charity can reclaim 25p of tax for every £1 donated, so a £100 donation becomes worth £125 to the charity. Higher-rate taxpayers can claim additional relief on their tax return, but the charity’s uplift comes from the basic-rate reclaim. Gift Aid isn’t a government grant, a penalty, or a loan, and it doesn’t replace the broader funding that charities rely on.