Setting up and running a charity – guidance

Gift Aid: what donations charities and CASCs can claim on

The types of fundraising donations that charities and community amateur sports clubs (CASCs) can claim Gift Aid on and the exceptions.

Introduction

Gift Aid can be claimed on donations of money made by an individual UK income taxpayer. It’s an easy way to help your charity or community amateur sports club (CASC) maximise the value of donations.

To claim Gift Aid, you must be recognised by HM Revenue & Customs (HMRC) as a charity or CASC and you’ll need to ask donors to make a Gift Aid declaration.

In certain circumstances, some payments made to charities which are not strictly gifts, like membership subscription paid to a charity, may be treated as donations for Gift Aid purposes.

If any donor or person connected to the donor benefits significantly from their donation, it doesn’t qualify for Gift Aid.

The benefit rule

When someone makes a donation, you might want to give the donor something in return (an item or service) to say thank you. This is known as a ‘benefit’. Literature that tells donors what your charity does eg a newsletter or a simple plaque to thank a donor, doesn’t count as benefits.

The value of a benefit is always the value to the recipient, not the cost to your charity or CASC. For most benefits, the value is simply the retail value of the item or service.

If you can’t find out the retail value of an item or service, you must work out how much someone would be prepared to pay. You could, for example, look at the value of similar items or services. Where a benefit is attendance at an event that is not open to the public, the value of the benefit is the cost of the event divided by the number of guests.

You can claim Gift Aid on the donation if the value of the benefit doesn’t exceed certain limits, for example:

Donation Maximum value of benefit
up to £100 25% of the donation
£101 - £1000 £25
£1,001 and over 5% of the donation (up to £2,500)

These rules still apply when the benefit is given to a family member or a company run by the donor.

The benefit rules apply to different types of donation, like charity auctions and charity events and may affect the amount you can claim.

You must keep a record of Gift Aid donations you receive and all benefits that were given to donors as a consequence of their donation.

When Gift Aid can’t be claimed

You can’t claim Gift Aid on:

  • payments for goods and services
  • donations of money from a company
  • gifts made on behalf of other people, for example, a membership subscription paid on behalf of somebody else
  • gifts that come with a condition about repayment
  • gifts that come with a condition that the charity buys goods or services from the donor
  • payments received in return for goods or services for example admission to a concert or a fee for a sponsored challenge
  • a ‘minimum donation’ where there is no choice about payment
  • gifts made using ‘charity vouchers’ or ‘charity cheques’
  • donations received before the date that HMRC accepts your organisation as a CASC or a charity for tax purposes

If your charity organises fundraising events such as marathons or treks abroad, you may be able to claim Gift Aid on sponsorship that participants raise.

All sponsorship payments are eligible for Gift Aid if participants pay the cost of flights and accommodation themselves.

Example:

A donor signs up for a sponsored bike ride in Vietnam which costs £1,500 for flights and support costs. The charity asks the donor to raise £2,500, of which £1,000 goes to the charity.

Where sponsorship payments are eligible for Gift Aid, sponsors must make a valid Gift Aid declaration.

The deposit or registration fee that participants are asked to pay in advance of a sponsored challenge is not eligible for Gift Aid.

If a sponsor is connected to the participant, their donations only qualify for Gift Aid if the participant pays the full cost of the trip so that all the sponsorship money raised goes to the charity.

A ‘connected person’ is:

  • a wife, husband or civil partner
  • a brother, sister, parent or grandchild
  • the wife, husband or civil partner of a relative
  • a company under the control of the donor, or under control of connected persons

HMRC recognises that a charity or CASC cannot be expected to check whether a participant and their sponsors are connected. But you should take reasonable steps to ensure that Gift Aid payments are not received from people or companies connected to a participant. You can do this by including an explanation in any event literature and on the sponsorship form.

Charity membership fees

To qualify for Gift Aid, charity subscription payments must be for membership only. They must not give members personal use of the charity’s facilities or services.

These conditions still allow members to:

  • receive newsletters you produce to explain your charity’s work
  • visit and view the work of your charity
  • take part in activities that form part of your charity’s objectives

CASCs can’t claim Gift Aid on membership payments because members are given personal access to the club’s facilities or services.

Charity and CASC membership fees do not qualify for the Gift Aid Small Donations Scheme (GASDS).

Gift Aid can’t be claimed on a subscription payment paid on behalf of someone else. This is because it’s considered a gift to the person whose membership is paid, not to the charity.

However, if the membership is paid for a child (under the age of 18), payment is accepted as a gift and is eligible.

Professional organisation membership fees

Membership subscriptions paid to some professional organisations on HMRC’s list of qualifying bodies can be treated as an expense deduction. Working members can claim tax relief on their subscription, but subscriptions can’t be treated as Gift Aid payments.

Retired or student members’ subscription fees can be treated as a Gift Aid payment, but they must confirm that they don’t have income from which they can deduct professional membership subscriptions.

Church collections

You can’t claim Gift Aid on donations collected in your church that will be passed directly to another charity. This is because the money collected is not part of the church’s income.

If a church chooses to set up a fund to raise money for a charity, then the money collected forms part of the church’s income. In this case, the church (which is a charity in its own right) must claim any Gift Aid due.

Selling donated goods on behalf of individuals

This process is not exclusive to charity shops. It can also apply to donated goods sold on the internet or at a public auction.

Money raised by selling donated goods like clothes does not qualify for Gift Aid. You need to explain to owners of donated items that the shop, auction or website will act as their ‘agent’ to sell goods on their behalf if the owner will give the sale proceeds (minus any commission charged) to the charity as Gift Aid donation.

If you operate a charity shop, staff and volunteers must explain the arrangements before donors complete a form appointing you as their agent.

The owner has the right to keep all of the proceeds from the sale of their goods. They can choose to donate all or part of the amount. You can claim Gift Aid on the agreed amount after any commission (including VAT) has been deducted.

The owners of donated goods will usually make a Gift Aid declaration when they ‘sign up’ for the scheme, before their goods are sold.

Operating Retail Gift Aid

There are 3 ways of operating ‘Retail Gift Aid’:

  • the Standard Method
  • Method A
  • Method B

If shops are operated by the charity directly, then the charity can use the Standard Method or Method A. Charity shops that are run by a trading subsidiary company of a charity can use Method B. If shops are operated by a separate entity such as a company, then any method can be used.

The Standard Method allows an individual to take goods to a charity shop and agree that the shop will act as their agent in selling the goods (the shop will deduct a commission). The individual must fill in a Gift Aid declaration at this stage, if the charity does not already hold one from the individual. The charity marks the goods in some way so that the sales proceeds can be linked back to the donor.

After the goods are sold (but before the charity makes a Gift Aid claim) the charity shop writes to the owner of the goods to advise them of the net sale proceeds. HMRC provides template letters for the Standard Method, Method A and Method B for you to download, print and use.

Other template letters are available for:

The charity shop must give the individual at least 21 days to respond to this letter before it treats the net sale proceeds as a donation to the charity.

How each method works is explained in more detail in HMRC’s detailed guidance on Retail Gift Aid. If you want to claim Gift Aid in this way, you must read the guidance to make sure you meet the conditions of the scheme.

Keeping records

You must keep all documentation related to claims on the proceeds from the sale of goods on behalf of individuals, including:

  • the donor’s dated Gift Aid declaration
  • a copy of any written agreement with the donor that shows the charity or its subsidiary can sell goods on their behalf
  • documentation to show that the individual has been notified of sale proceeds where required
  • accounting records to prove that items belong to an individual
  • if the goods are sold by a trading subsidiary, records to show how the sales proceeds are sent to you

Charities are advised to maintain records of staff and volunteer training and guidance, to prove that they’re implementing the process correctly.

Charity events

If you sell tickets to an event you’ve organised, eg a concert or fundraising dinner, payment does not qualify for Gift Aid. Even if the ticket price is higher than the cost of the event, the money made from ticket sales counts as profit and not a donation.

To qualify for Gift Aid, a payment must be a voluntary donation and not be a compulsory payment for attending an event.

Minimum donation payments don’t qualify for Gift Aid. But if someone chooses to pay more than the minimum donation, the extra amount paid qualifies for Gift Aid.

If you set a ticket price for an event and also ask for a suggested donation, the donation is eligible. You must make it clear to people buying a ticket that they can attend without making a donation, but you mustn’t give preference to those who do give a donation.

If you arrange a ‘donation only’ event where people can attend whatever they decide to give (including making no donation), then all donations would qualify for Gift Aid.

Viewing charity property

Entry fees to visit and view your charity property don’t qualify for Gift Aid because they are not a gift. But a voluntary donation that allows visitors to view your property may qualify for Gift Aid.

Donations qualify when they:

  • are 10% or more than the normal admission fee, or
  • allow admission for at least 12 months

You must offer visitors a choice to pay the normal entry fee only or the admission price plus a donation at the time of entry.

Information you must provide to visitors

Visitors must receive the same right of admission whether or not they pay a donation.

You’ll need to clearly advertise their normal entry fee and make it clear to all visitors that they will be allowed entry when they pay the lower admission charge if they choose not to make an additional 10% voluntary donation.

You can explain the choice to pay the standard entry fee or the 10% or more donation amount on your admission signage and website. The options should be explained by staff or volunteers at the time of asking for payment.

If you don’t give visitors a clear choice to pay the standard entry fee or make a donation of 10% or more, then any payment that exceeds the standard entry fee by 10% or more is not a freely-given gift. In this case, payment would not be eligible for Gift Aid.

When visitors pay

When a visitor voluntarily agrees to pay a donation of 10% or more, you must ask the donor:

  • is the donation for entry by members of the donor’s family only
  • for a written or verbal Gift Aid declaration

If the visitor gives you a verbal declaration, you must give them written confirmation and keep a record for yourself. This is usually included as part of the payment receipt issued with entry tickets, eg on the till receipt.

For visitors who choose admission for at least 12 months, you have 2 options:

  • accept a donation and allow free admission for all visits during the period (minus up to five days a year when free entry doesn’t apply)
  • accept a donation and grant a right of admission on payment of a reduced fee, which must apply to all visits during the period (only the initial donation qualifies)

Terms and conditions

A voluntary donation that allows visitors to view your property will not qualify for Gift Aid if the terms and conditions attached to an admission fee include a right to a full or partial refund of the payment. For example, in the event of bad weather, cancellation of an exhibition or mechanical failure of an exhibit.

This is because under the Gift Aid scheme a donation cannot be repaid under any circumstances.

Expenses paid to volunteers

If the expenses are reasonable, you can reimburse a volunteer for costs they have had to pay because of their work, eg, train fares.

Once you pay a volunteer, they can keep the money or pay part or all of it back to the charity as a Gift Aid payment.

Gift Aid only applies when the volunteer makes an actual payment of money to your charity or CASC. You can’t claim Gift Aid if a volunteer decides not to claim for expenses that they’re entitled to.

If you pay expenses to a volunteer which are higher than the costs incurred, the payment may be taxable as employment income if it can be shown that they’re employed. If this can’t be proven, the payments may be chargeable as a miscellaneous receipt.

Charity auctions

When the retail value of an item bought in a charity auctions exceeds the benefit limits, Gift Aid can’t be claimed.

It is possible for the donor’s payment to be split between an amount to ‘buy’ the item and an amount that can be treated as a gift. To do this the value of the item auctioned is subtracted from the amount paid. The remainder is treated as a donation that can qualify for Gift Aid. You must make the value of the item clear to bidders at the auction before each item is sold.

For an item that’s not commercially available, supporters at a charity auction may pay more than its retail price to increase their donation or because the item is unique. The commercial value of a football shirt, for example, is increased if it’s signed by the football team. The benefit for Gift Aid purposes is the amount it fetches in the auction.

The benefit is calculated as follows:

Donations Maximum value of benefit
up to £100 25% of the donation
£101 - £1000 £25
£1,001 and over 5% of the donation (up to £2,500)

When the donation exceeds the benefit limits

When the value of the benefit exceeds the limits in the donor benefit rules, the donor can ‘buy the benefit’.

For the donor to ‘buy the benefit’, and enable you to claim Gift Aid, you must make them aware of the retail cost of the item (the value of the benefit) and that they can buy the item elsewhere when they make their successful bid (donation).

This ‘excess donation’ qualifies for Gift Aid.

In some cases, supporters can bid on services that donors promise to carry out for successful bidders, like a massage or childcare. To be eligible, the amount that the successful bidder pays for the ‘promise’ is the same as the value of the benefit. If a ‘promise’ is commercially available, the value of the benefit is the same as its retail price.

Donations to schools, charities involved in running schools and Educational Trusts

Only voluntary gifts or payments are eligible for Gift Aid, simply describing a payment as ‘voluntary’ or a ‘donation’ does not make it eligible for Gift Aid.

If access to educational services or facilities provided by a school requires a payment to be made by parents or relatives of students, payments are not ‘voluntary’ and therefore they are not charitable donations.

If parents or relatives are asked to make payments of ‘voluntary contributions’ to a school or school charity, which are linked to the provision of services or facilities to related pupils, they are not charitable donations.

Payments made for tuition fees, school holidays, extra-curricular activities, lessons, educational trips, or tickets for a school production are not eligible for Gift Aid. This is because these payment are not voluntary gifts, and a student receives a benefit paid for by a relative.

Donations made to an appeal or for a specific charitable purpose of the school, may be eligible for Gift Aid. Donations must not be linked to the provision of any benefit to a student related to a donor.

Donations given for non-uniform days, sponsored events, building appeals and equipment appeals will usually qualify for Gift Aid.

Educational school trips

Head teachers may not charge parents for any school trip that is part of the national curriculum. However, the head teacher may ask for a voluntary contribution towards a trip. The children of parents who do not contribute must not be discriminated against.

Voluntary contributions are eligible if:

  • they’re non refundable even if the trip doesn’t go ahead or if their child does not go on the trip
  • any benefit (for example, travel costs, trip insurance, cost of entry) does not exceed maximum levels of allowable benefit for the donation
  • the school tells parents that the contribution is not compulsory

Example 1:

Voluntary contribution requested by school Voluntary contribution actually made Amount eligible for Gift Aid
£10 £15 £5

Example 2:

Cost of trip to a museum Voluntary contribution requested by school Amount eligible for Gift Aid
£8 (transport £5, entry £2 and brochure £1) £10 £0

In this case, the amount doesn’t qualify for Gift Aid because the benefit of £8 (80%) exceeds the 25% limit on benefits because:

Donations Maximum value of benefits
up to £100 25% of the donation
£100 to £1,000 £25
£1,001 and over 5% of the donation (up to £2,500)