Payments to a Charity under Deed of Covenant
How it works
This is a scheme where an individual (the donor) signs a deed of covenant under which they promise to pay to a charity a sum net of Jersey income tax for a period of at least five years.
The charity in turn reclaims, upon presentation of the appropriate certificate, the tax deducted from the payments it receives.
For example, an individual covenants £500 for five years. The individual will pay to the charity this annual sum. The charity will then receive from the taxes office, upon submission of the relevant paperwork, an additional £125 each year over the period of the covenant. This is called the ‘tax deducted’.
What if the donor doesn’t pay tax?
An individual who does not pay Jersey income tax will not benefit from the deed of covenant scheme. The taxes office will seek to recover from the individual the tax deducted under the covenant.
In the example above if the donor paying the £500 is exempt to tax, they will receive a tax demand of £125 from the taxes office (being the amount of tax deducted). So overall they will have paid out £625.
The charity, however, still has the right to their reclaim of £125.
The Information required on a deed of covenant
The original deed of covenant should include:
- the date the deed of covenant is made
- the name and address of the person making the deed of covenant
- the total annual amount to be given to charity, with the wording ‘after deduction of income tax at the standard rate’
- the period of the covenant (this must be for a minimum of five years)
- the date the first payment is to be made.
The deed of covenant should then be signed by the person making the covenant and independently witnessed.
Sample deed of covenant
Submitting the deed of covenant
The original deed of covenant should be sent to the taxes office by the charity’s administrator. It will be authorised and returned. If there are a number of covenants made, these should be sent in batches to the taxes office, rather than individually.