# charity.higher-rate-relief

What a donor's Gift Aid donations save the donor in their own tax, on top of
the basic rate tax the charity reclaims. Give it the donor's taxable income
for the year, the total Gift Aid donations they made in it, and where they pay
income tax.

ITA 2007 s414(2)(b) treats the basic rate limit and the higher rate limit as
raised by the grossed up donations. For a Scottish taxpayer the upper limit of
the Scottish basic rate and the limits of every Scottish rate above it are
raised too, but **not the starter rate limit**. Income that the wider bands
move from a higher rate into a lower one is the relief:

- a higher rate taxpayer giving £800 (£1,000 gross) saves another £200;
- an additional rate taxpayer saves £250, because the additional rate
  threshold moves as well;
- a Scottish intermediate rate taxpayer saves 1% of the gross, a Scottish
  higher rate taxpayer 22%;
- someone only £300 into the higher band saves 20% of £300, not of £1,000.

The relief is worked out as the difference between the tax on the same income
with the ordinary and the extended bands, in exact pence x basis points, and
rounded down to the penny once. `taxAfter` is `taxBefore` less that relief.

## Where the bands come from

The bands are **payroll.income-tax's own dated band data** (region, rate, upper
limit, which band is the basic rate), imported from its data module rather
than copied, so a new tax year added there reaches this capability too. That
data starts in 2023-24, so earlier tax years are an error. Its `upTo` figures
are the statutory limits on taxable income (basic rate limit £37,700, higher
rate limit £125,140; the Scottish limits by year). Grossing up uses the UK
basic rate from charity.gift-aid, as s415 requires, for Scottish and Welsh
taxpayers too.

## What it does not do

- **The personal allowance taper.** Gift Aid also reduces adjusted net income
  (ITA 2007 s58), which can restore personal allowance lost above £100,000 and
  is worth far more there. `taxableIncome` is taken as given, after
  allowances; work the allowance out first with the donations deducted from
  adjusted net income, then call this.
- Savings and dividend income, which have their own rates.
- s414A, the adjustment when a devolved basic rate differs from the UK basic
  rate. The Scottish and Welsh basic rates are 20% in every year on file, so
  it never applies; if the data ever says otherwise this is an error rather
  than a wrong answer.
- Carry-back of gifts to the previous tax year (s426).

## Sources

- Income Tax Act 2007 s414 (band extension, including the Scottish limits) and
  s415 (grossed up at the basic rate), https://www.legislation.gov.uk/ukpga/2007/3/section/414
- ITA 2007 s58 (adjusted net income), https://www.legislation.gov.uk/ukpga/2007/3/section/58
- Band figures: see payroll.income-tax's README and data.