Gift Aid is where you make a charitable donation and if the registered charity is also registered for Gift Aid then, provided the person making the gift confirms that they are UK resident tax payers, the Government will add basic rate income tax relief as a bonus for the charity.
The problem arises when you are not a tax payer.
In a recent self assessment tax return for a client, the client had £12,000 per annum in rental income plus £1,000 per annum in bank interest. Given the client has property income, a tax return is required.
The client is actually a non-tax payer as the £1,000 pa interest is tax free as it falls within the Personal Savings Allowance. In addition, the rental income of £12,000 is below the Personal Tax Allowance threshold of £12,500 pa, so the client pays no tax there either.
By assumption or in error, the client had made charitable donations throughout the year and gift aid had been claimed by the charities. HMRC does not ask questions of the charity, it simply sends the Gift Aid relief to them. In short, charities get an income tax relief bonus from the donation but the donor was not a tax payer.
HMRC does not ask the charities for the money back, it sends you the tax bill. In summary, the client had made gifts and then received a tax bill for the gift aid relief that had been paid to charities.