This has been a tough year for charities. Corporate donations have dried up as companies prioritise in order to survive and charities who rely in part on government funding are drawing on increasingly limited resources.

However, despite pay cuts and income levies having a significant impact on the amount of spare cash out there, charities are reporting that individual donations have remained relatively robust. Still, they could benefit even more if people took better advantage of the generous tax reliefs available.

Most of us give to charity regularly but generally it's through small donations – sponsoring a friend to do a 10k run or supporting the Irish Cancer Society by buying a daffodil. That kind of giving is important for charities but by making a series of small donations to a range of charities rather than one relatively large one to a single charity annually, donors are missing a trick when it comes to making their money go a long way.

Tax relief on charitable donations can bump up your donation considerably. When a PAYE earner donates €250 or more to a charity annually, the charity is entitled to a refund from the government on the tax you have paid on the sum. So, in the case of a standard-rate taxpayer who has donated €250, the charity will qualify for an extra €62.50. At the higher rate, the charity qualifies for an extra €173.73, meaning your total donation is worth a substantial €423.73.

The donor simply fills out a CHY-2 Certificate and the charity takes care of the rest. Better yet, you don't need to make the donation in one lump sum to qualify for tax relief – if you are a regular monthly donor, the accumulated amount will attract the relief as long as it is north of the threshold.

Christmas boost

Charitable organisations traditionally receive a boost at Christmas with spontaneous donations but monthly donations are becoming increasingly important as they seek steady sources of income in the downturn, according to John McGauley, operations director for Amnesty International Ireland.

"The key thing for us is that a lot of our support is year-round through monthly giving and we would say to anyone who wants to support us to seriously consider taking out a monthly membership because that is one way to ensure that we are sustainable and can continue our work," he said.

The tax-relief system is very different for the self-employed, with the money returned directly to them. So, in the case of a self-employed person on the standard rate donating €500 to a qualifying charity, the Revenue Commissioners will return €100 directly to the donor. Corporate donations are treated in a similar manner – a company can claim a deduction for the donation and treat it as though it were a trading expense, claiming tax relief at the corporation tax rate of 12.5%.

The next few weeks are key for charities trying to attract corporate donations. Charities may benefit from companies wanting to show restraint given the current circumstances, said Niamh Mulqueen, corporate relations director with Bóthar, which launched its annual Waste Not, Want Not campaign last week.

"We are hoping that companies who don't want to be seen giving expensive hampers and so on will want to go for ethical and environmentally friendly gifts by donating," she said.

Tax relief change

This may be the last year that the current tax-relief system applies with the Commission on Taxation making a number of recommendations that will affect both individual and corporate donations if adopted by the government.

For individuals, the commission recommends that the threshold for donations eligible for tax relief be reduced from €250 to €100, which should make tax-efficient charitable donations more palatable for people with modest incomes.

However, this could be counterbalanced by the commission's recommendation that the relief be standard-rated for everybody, which means that charities will not benefit as much when higher earners donate.

Additionally, they have recommended that donations from the self-employed be treated in the same manner as those from PAYE earners – tax relief would go the charity rather than the donor.

This could end up being a double-edged sword for charities, said Jeremy Mitchell, director with Astons Tax and Wealth Consultants.

"On the one hand it would both simplify the system and result in increased benefits to charity which should go some way to compensating for standardising the relief. It could, however, be a disincentive for self-employed individuals to give as there is no benefit to them. In other countries, such as the USA, the individual can always claim when they make a charitable donation. There is a fear among many charities that the disincentive could prove disastrous, particularly at the higher end of giving," he said.

The commission has also recommended an upper limit of €500,000 per person on the annual value of donations which may attract tax relief. Currently, high net-worth individuals can reduce their taxable income by 50% using a range of reliefs including those on charitable donations.

Problems for charitable giving

The cap would put charitable donations on a separate footing, however, it could act as a disincentive for philanthropists, said Mitchell.

"The removal of the tax relief from the restrictions affecting high earners is to be welcomed as it was an unnecessary limitation. However, the imposition of the €500,000 ceiling would cause problems for charitable giving at the top end by both individuals and companies.

"In particular, it would discourage the giving of endowments by both large corporations and millionaire philanthropists as it is not worthwhile setting up an endowment for just €500,000. Endowments can be worth millions," he said.

Corporate donations have also been targeted by the commission, with a similar €500,000 cap on donations recommended with the tax relief paid directly to the charity or approved body.