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This publication is available at https://www.gov.uk/government/publications/charities-detailed-guidance-notes/chapter-3-gift-aid
Chapter 3.1 Introduction
This chapter covers the Gift Aid Schemes for donations to charity by:
- individuals (legislation at sections 413 to 430 Income Tax Act 2007)
- companies (legislation at sections 191 to 202 Corporation Tax Act 2010)
Chapter 3.2 Gift Aid for individuals from 6 April 2000
3.2.1 The Gift Aid Scheme was originally introduced by section 25 Finance Act 1990 but was substantially amended by Finance Act 2000 and later Finance Acts. The current legislation is at sections 413 to 430 Income Tax Act 2007.
A donation qualifies for Gift Aid if it’s a gift consisting of a ‘payment of a sum of money’ by an individual who’s paid, or will pay UK tax, to a charity and satisfies all of the following conditions:
- the gift isn’t subject to a condition as to repayment
- the gift isn’t a Payroll Giving donation
- the gift isn’t deductible from income for tax purposes
- the gift isn’t part of an arrangement for the charity to acquire property from the individual or a connected person
- any benefits associated with the gift are within the statutory limits (see section ‘Donor benefits’)
- the gift isn’t a ‘disqualified overseas gift’ (this applies only to payments made before 6 April 2010)
3.2.2 A Gift Aid donation is treated as being made after the deduction of the basic rate of Income Tax in force at the time the donation is made and it’s that tax that the charity can reclaim provided the following conditions are met:
- the charity must have a Gift Aid declaration made by the donor which covers the donation (see paragraph 3.6)
- the charity must have evidence that they’ve explained to the donor the personal tax implications of making a Gift Aid donation - this can be done by including an explanation on the Gift Aid declaration or separately
- there must be an audit trail linking the donation to the donor and their Gift Aid declaration
The donor must be charged with Income Tax and/or Capital Gains Tax for the year of donation at least equal to the tax treated as deducted from their donation. If more than one Gift Aid donation has been made in the tax year they must be added together to work out the tax the donor must be charged with. If the donor isn’t charged with sufficient tax to cover the Income Tax deducted from their Gift Aid donations then they will owe the amount of the difference in tax to HM Revenue and Customs (HMRC) see paragraph 3.5.
Chapter 3.3 Individuals who can make a Gift Aid donation
3.3.1 The following individuals can make Gift Aid donations:
For tax years up to and including the 2009 to 2010 tax year:
- all individuals who are resident in the UK
- individuals who are Crown servants or members of the UK armed forces serving overseas
- other non-resident individuals, provided they have income or capital gains charged to UK tax at least equal to the gross amount of the donation (that is, the actual donation made plus the basic rate Income Tax treated as deducted from that donation)
For the 2010 to 2011 and subsequent tax years - all individuals - the same rules apply for resident and non-resident individuals. Anyone who makes a Gift Aid donation must be charged Income Tax and/or Capital Gains Tax for the year of donation at least equal to the tax treated as deducted from all their Gift Aid donations.
Chapter 3.4 Methods of donation
3.4.1 Donors must donate their own money. The donation can be made by cash, cheque, direct debit, credit card, debit card, postal order or standing order. ‘Telegraphic transfer’ is also acceptable. Donations can be made in sterling or any foreign currency. When calculating claims the charity must convert foreign currency into sterling at the rate on the date when the donation was made.
3.4.2 A donor can choose to donate any amount to charity - there’s no upper or lower limit.
3.4.3 Donations by cheque are only valid pending clearance of the cheque. If the cheque isn’t honoured a donation hasn’t been made.
3.4.4 A donation must be a payment of a sum of money. A donation can’t be made in kind, by loan waiver or by debt/loan conversion.
3.4.5 Payments to a charity in return for services, rights or goods aren’t gifts to charity and so aren’t eligible for the Gift Aid Scheme. For example, the following can’t come within the Gift Aid Scheme:
- payment of school fees for a specific person
- payment to purchase books, jumble sale items, food etc
- payment for admission to events (jumble sales, concerts etc)
- payment for raffle or lottery tickets (including 100 clubs etc) - the payment to purchase a raffle ticket from a charity isn’t a gift but a payment for the right to enter the raffle - it doesn’t matter that the chance or expectation of winning a prize is small or that the prize is of little value
A charity must not make claims under the Gift Aid Scheme in respect of payments which have already received tax relief. This includes payments received in the form of charity voucher or from a Payroll Giving Agency in respect of payments made under the Payroll Giving Scheme.
Charities should also note that charity vouchers can’t be used to purchase services or goods from them.
3.4.6 Deeds of covenant aren’t effective for tax purposes. However, payments under a deed of covenant may qualify as Gift Aid donations provided all the conditions of the Gift Aid Scheme are satisfied.
3.4.7 See further guidance at 3.44 on Digital/Social giving.
Chapter 3.5 Tax to cover
3.5.1 Donors must be charged an amount of Income Tax and/or Capital Gains Tax, whether at the basic rate or some other rate, for the tax year in which Gift Aid donations are made at least equal to the Income Tax treated as deducted from the total of all their Gift Aid donations made in the same tax year. Donors who haven’t been charged sufficient tax to cover the Income Tax deducted from their Gift Aid donations are responsible for pay any difference.
During the 2015 to 2016 tax year (basic rate of tax 20%), a donor (Mr Green) who only pays a small amount of Income Tax each tax year wins a tax free cash prize of £10,000 in a competition. He decides to share his good fortune and makes Gift Aid donations of £800 to charity A and £1,600 to charity B.
Charity A claims Gift Aid tax relief of £200 and charity B £400 - the total Gift Aid tax claimed by the 2 charities on Mr Green’s Gift Aid donations in the tax year is £600. However, Mr Green only paid Income Tax of £250 during the 2015 to 2016 tax year and so he owes the £350 difference in tax (£600 total Gift Aid tax claimed less £250 Income Tax paid by Mr Green) to HMRC.
3.5.2 The introduction of the Dividend Allowance on 6 April 2016, means that individuals won’t pay tax on the first £5,000 of their income from dividends paid by companies that they own shares in. This means that only donors that have paid tax on dividend income over the £5,000 allowance will have some tax that can be used to cover their Gift Aid donations to charities and CASCs. Tax credits on dividends paid by UK companies, up to 5 April 2016 could be used by the donors to cover the tax reclaimed by the charity on their Gift Aid donations made before 6 April 2016.
3.5.3 The tax-free Personal Savings Allowance of £1,000 (£500 for higher rate taxpayers for savings income or interest was introduced from 6 April 2016. This means that most people will no longer pay tax on savings interest because banks and building societies will stop deducting tax from interest they pay on savings accounts. Only donors who have savings income or interest of more than £1,000 (£500 for higher rate taxpayers) will have pay some tax that can be used to cover their Gift Aid donations to charities and CASCs.
3.5.4 Only Tax deducted from bank and building society interest etc, paid before 5 April 2016 and not repaid to the individual, can also be used to cover the tax reclaimed by a charity on Gift Aid donations received from a donor before 6 April 2016.
3.5.5 The position of a taxpayer making Gift Aid donations can change from one tax year to the next. Charities should remind donors on a regular basis of the need for them to have paid sufficient Income and/or Capital Gains Tax on their donations. It need not be done in a separate letter to each donor, but could be included in any material sent to supporters, for example a newsletter.
Chapter 3.6 Gift Aid declarations
3.6.1 Before a charity can reclaim tax on a donation received from an individual, it must have received a Gift Aid declaration from the donor. Without this declaration, a donation from an individual won’t qualify as a Gift Aid donation.
3.6.2 A Gift Aid declaration must:
- state the donor’s name and home address
- name the charity
- identify the gift or gifts to which the declaration relates (for example, a particular donation or all donations)
- confirm that the identified gift or gifts are to be treated as Gift Aid donations
In addition, in order for a Gift Aid declaration to be valid, the charity must give and be able to demonstrate it has given an adequate explanation to the donor of the personal tax implications associated with making a Gift Aid donation (see paragraph 3.5) including the responsibility to pay any difference. This explanation can be included on a Gift Aid declaration but can also be made separately.
3.6.3 Gift Aid declarations can be given in writing (including by email, fax, or text message) or orally (in person or by telephone). A declaration can cover a single donation or any number of donations.
3.6.4 Donors are able to give the charity a declaration:
- in advance of their donation
- at the time of their donation
- at any time after their donation subject to the normal time limit within which tax can be reclaimed
Find out more information on time limits for making a claim.
3.6.5 A charity must keep adequate records to be able to show a clear link between an individual’s donation and the Gift Aid declaration made by the individual. This is referred to as an audit trail and enables HMRC to trace a donation back to the donor to ensure that they’ve paid sufficient tax to cover the tax that is reclaimed by the charity.
3.6.6 A charity may want to add further information and notes of its own on a declaration form. HMRC has no objection to this or to the inclusion of a declaration in other documents, such as standing order mandates provided the statutory requirements for a Gift Aid declaration are met.
3.6.8 HMRC doesn’t produce an official form for Gift Aid declarations, so a charity can design its own. But the HMRC website contains a model Gift Aid declaration and it’s recommended that charities use the model adapted, as appropriate, to reflect the period of the intended Gift Aid donation(s).
The notes at the foot of the declaration are purely explanatory and can be omitted if you wish.
Many charities believe a signature makes an individual more committed to their charity. However, there’s no requirement for a declaration to contain a signature and so the ‘signature requirement’ can be removed if you wish.
The declaration doesn’t require a date but a date serves to identify the period covered by the Gift Aid declaration and where this isn’t otherwise clear from the terms of the declaration it’s necessary to include a request for a date.
The charity must tell a donor of the tax implications of making a Gift Aid donation. The charity can choose to leave the tax explanation on their Gift Aid declaration or omit it. If it’s omitted then the charity must ensure that they clearly explain the donor’s tax requirement to their donors and are able to demonstrate to HMRC that they’ve done so.
A statement that ‘I am a UK taxpayer’ isn’t sufficient to meet the charity’s requirement to advise a donor of the tax implications of making a Gift Aid donation. A full explanation is essential to protect the individual donor and the charity. If the donor hasn’t paid enough tax to cover the tax deducted from their Gift Aid donation(s), HMRC may ask the donor to pay the difference in tax and donors must be made aware of this. If the explanation is insufficient the Gift Aid declaration won’t be valid and the charity may need to repay tax to HMRC.
3.6.9 There’s no need for a charity to get approval from HMRC for own-design declarations - but HMRC will review proposed designs on request.
3.6.10 From 6 April 2017, individuals can authorise an intermediary to make a Gift Aid declaration to one or more charities on their behalf until the end of the current tax year ending on 5 April.
3.6.11 The process is explained in detail in Annex ix of these detailed guidance notes.
Chapter 3.7 Recording and audit of Gift Aid declarations
3.7.1 HMRC is required to ensure that any tax repaid to a charity is properly due and correctly calculated. HMRC does this by carrying out inspections to check that Gift Aid claims are made for the correct amounts and are backed by valid Gift Aid declarations and clear audit trails in respect of donations received.
3.7.2 A charity must maintain a clear auditable record of declarations and of the making of those declarations, so that it’s able to demonstrate that a donor has in fact made an appropriate declaration. Examples of what HMRC is likely to accept as evidence includes:
- written declaration made by the donor or a ticked box confirmation by the donor that they wish Gift Aid to apply to the donation
- an audio recording of the making of a declaration by the donor or an audio recording of the donor confirming a declaration where the declaration is pre-recorded by the charity
- a computer record of a declaration template filled in by the donor and containing a link to the donors banking details
- an emailed copy of a declaration
- a computer ‘screen print’ of the declaration sent to the charity
- a scanned image that’s an exact replica of a declaration
- a copy of a mobile phone text message confirmation of a declaration
- confirmation that a donor has been sent a written record confirming their oral declaration
Note: the transcribing of declarations given by donors into a database won’t satisfy the requirements to have an auditable record as such a record doesn’t demonstrate that the donor made the declaration.
3.7.3 A charity must also maintain records that provide an audit trail linking each donation to an identifiable donor who has given a valid Gift Aid declaration, and provide acceptable evidence that a donor has been advised that they’re liable to tax if they haven’t paid an amount of Income Tax and/or Capital Gains Tax equal to the amount reclaimed by the charity
Further guidance on audit procedures is available at Chapter 7 of these detailed guidance notes.
Chapter 3.8 Declarations that have been invalidated or cancelled
3.8.1 Invalid declarations
Where a charity hasn’t maintained an auditable record of Gift Aid declarations and the making of them, or where those records are insufficient to show that the donor made the declaration, the declaration will be invalid. A charity will then be liable to pay back to HMRC all tax repayments received in relation to those gifts. This will include interest and possibly penalties.
A charity may be able to validate an invalid declaration by sending a written statement to the donor - this includes a statement sent by email. The written statement should contain:
- all of the information provided by the donor in their declaration
- an explanation that the donor must have paid enough Income Tax and/or Capital Gains Tax to cover that reclaimed by the charity
- the date on which the charity sent the written statement to the donor
- a statement giving the donor 30 days from the date of the written statement in which to cancel the Gift Aid declaration
HMRC will accept that a written confirmation has been issued where the charity can show it has issued a standard letter template in an acceptable format and provides a list of the donors to whom the letter was sent.
Where the donor cancels their declaration within 30 days, the declaration will be treated as if it was never made. The charity must maintain an auditable record of all written statements and cancellation notices.
If the written statement is marked ‘returned to sender’ or ‘not known at this address’ etc the charity should treat the declaration as if it has been cancelled. The charity must keep a record of the cancellation.
If there’s no indication that the donor didn’t receive the notice and the donor doesn’t cancel the declaration then the declaration will be considered valid and Gift Aid can be reclaimed by the charity on the gift or gifts to which it applies. The charity must maintain records of the written statements and any cancellation notices to a suitable standard to enable the records to be audited.
3.8.2 Cancellation of declarations
Donors are entitled to cancel their declaration at any time. They may do so by notifying the charity in any convenient way. The charity should keep a record of the cancellation of a declaration, including the date of the donor’s notification.
A cancellation will normally have effect only in relation to donations received by the charity on or after:
- the date on which the donor notifies the charity of the cancellation
- or such later date as the donor may specify in the cancellation
The charity must not reclaim tax in respect of such donations. Any donations received before the date of the donor’s notification will still qualify as Gift Aid donations.
If a donor who’s made an oral declaration and been sent a written statement by the charity cancels their declaration within 30 days of being sent the written statement, the cancellation will have retrospective effect, so that it’ll be as if the declaration had never been made.
Chapter 3.9 Further information on the contents of the Gift Aid declaration
3.9.1 The donor’s name and home address
The declaration should show:
- the donor’s full name - as a minimum HMRC will accept the donor’s initial and surname
- the donor’s full home postal address - as a minimum HMRC will accept the number (or name as appropriate) of their home and their full postcode
If HMRC finds the details on a declaration are insufficient to trace the donor, they may ask the charity to obtain further information to substantiate its claim. If the charity fails to obtain this information, it’s likely that the declaration will be considered invalid.
If a donor subsequently changes their name or address, this won’t invalidate the declaration. If the charity is notified of a change in the donor’s name or address, it must keep a record of the updated information - this can be kept as an electronic copy such as a scanned document. The declaration itself doesn’t need to be amended, but a record of the change should be kept on the charity’s database.
3.9.2 A Gift Aid declaration must clearly identify the charity
A declaration should ideally show the charity’s full name. The charity’s working name or acronym is acceptable, provided it’s sufficient to identify the charity beyond doubt.
There are other ways in which a charity might be identified in a particular declaration, for example:
- the use of a charity’s logo on a pre-printed form
- a reference to a particular appeal run by an individual charity
This will usually be acceptable but care should be taken that the information is sufficiently clear to identify a particular charity beyond doubt.
A telephone declaration might, for example, be made in response to a recorded message identifying the charity. An appropriate message will in itself be acceptable, there’s no requirement for the donor personally to identify the charity.
A declaration can include the name of more than 1 charity - for example, where a joint fund raising event takes place. In such a situation the charities involved need to ensure that:
- the donor is aware how his or her donation’s to be split between the charities listed on the declaration
- they each keep records of how the donations have been divided between them - each charity will also need to be able to produce a copy of the declaration, if required
Where a charity changes its name (for example because of a merger) the charity won’t need to obtain a new declaration from a donor so long as the charity can show beyond doubt that the name of the charity on the existing declaration is a name previously used by the charity.
3.9.3 Identify the gift or gifts to which the declaration relates
Any appropriate description can be used in a declaration but it must be unambiguous. Donations considered to fall outside the description provided won’t qualify for Gift Aid relief.
Examples of some common descriptions include:
- the donation of £x I made to you on dd/mm/yy
- the enclosed donation
- all donations I make under the direct debit mandate below
- all donations I make on or after the date of this declaration
- all donations I make from this date until further notice
- all donations I have made for the 4 years prior to this tax year
Whether the charity chooses from 1 or more of the above descriptions or devises its own, it’s important to get the description right. The declaration won’t cover any donations received that fall outside the description used. If a specific date isn’t included in the description then it’s essential that the Gift Aid declaration is dated so that the period it covers can be determined.
Depending on the description used, a declaration may apply indefinitely to future donations to the named charity.
If a donor wishes to alter the description of the gift or gifts shown on a declaration, they must cancel the declaration and make a fresh one.
3.9.4 Declaration that donations are to be treated as Gift Aid donations
The declaration must confirm that the gifts described in it are to be Gift Aid donations and this is best done by a specific reference in the description of the donation(s) that are covered by the Gift Aid declaration, for example:
- ‘Please treat the enclosed gift as a Gift Aid donation’
- ‘I want all my subsequent donations to be Gift Aid donations’
Chapter 3.10 Particular types of Gift Aid declarations
3.10.1 Oral Gift Aid declarations
In the case of an oral declaration, the person taking the declaration on behalf of the charity might recite information already held by the charity to the donor and ask them to confirm it, rather than asking the donor to recite the information themselves.
If a charity receives an oral declaration, and it doesn’t keep an audible (and auditable) recording of the donor’s oral declaration it must send the donor a written record of the declaration to include:
- all the details provided by the donor in their oral declaration
- an explanation that the donor must pay an amount of Income Tax and/or Capital Gains Tax equal to the tax deducted from their donations
- an explanation of the donor’s entitlement to cancel the declaration retrospectively within 30 days (see below)
- the date on which the donor gave the charity the oral declaration
- the date on which the charity sent the written record to the donor
An oral declaration won’t be effective unless and until the charity or its representative sends the donor the written record of the declaration. The charity can’t reclaim tax in respect of a donation covered by an oral declaration until it has sent the written record. Once the written record has been sent, the charity can reclaim tax in respect of any donations covered by the declaration, even if they were received before the written record was sent. If the oral declaration is cancelled within the 30 day period, however, any reclaimed tax will have to be repaid to HMRC.
The written record of the declaration doesn’t have to be recorded on paper. For example, the charity’s representative might record the details on a computer, with an electronic copy being emailed to the donor, or a paper copy sent by post. If the charity uses an electronic means of recording the donor’s information, it will need to be able to demonstrate at an audit that the electronic recording of the information generates a written record sent to the donor.
If a donor who’s given the charity an oral declaration cancels it within the period of 30 days after being sent the written record, the cancellation will have retrospective effect, so that it will be as if the declaration had never been made.
3.10.2 Joint declarations
It’s possible for spouses, civil partners and other persons living together to make a ‘joint’ declaration on the same form (in effect, there are 2 Gift Aid declarations). The ‘joint’ declaration must include the full name and address of each person. Both parties will need to make clear to the charity involved how much of any donation relates to each of them. They’ll also need this information for their own tax affairs. The charity will need to list each person separately on the schedule when making an online claim or completing paper form ChR1 and show the donation received from each.
3.10.3 Donations from all form of partnerships
A donation by a partnership consisting of individuals is treated as made by the underlying partners. Up to and including 5 April 2016 one partner can make a Gift Aid declaration on behalf of all the partners, provided he or she has the power to do so under the terms of the partnership agreement or some other instrument given under seal. They can do this on the same declaration form, provided it lists all the individual partners’ names and home addresses.
From 6 April 2016, when a business partnership makes a donation to a charity or CASC it will be necessary for each individual partner to make their own Gift Aid declaration in order to reflect the correct legal position. Each partner’s Gift Aid declaration must contain their name and full home address and be given to the charity or CASC. The amount of each partner’s share of the whole donation also needs to be specified in their declaration or in any supporting correspondence given to a charity or CASC.
The partners should enter their share of the donation on their own Self-Assessment tax return. How the donation is apportioned between the partners is a matter for them to decide. For example in:
- equal shares
- accordance with their share of the partnership profits set out in the partnership agreement
- whatever split the partners agree
The name and address of each partner that makes a Gift Aid donation to a charity or CASC must be recorded and shown separately on the Gift Aid schedule when it makes its claim for repayment of tax to HMRC.
3.10.4 Declarations linked to sponsored events
The money raised from a sponsored event doesn’t belong to the individual who’s being sponsored and it’s not theirs to give as a Gift Aid donation. However, individual sponsors may Gift Aid their own personal donations.
The sponsor needs to make a separate declaration to the charity on whose behalf the money is being raised. This is likely to be a one-off donation and the declaration should reflect this.
Alternatively, it’s possible for charities to design a sponsorship form that can also be used as a multiple declaration form. The suggested format is for the declaration to be placed at the head of each sheet, with each sponsor being able to opt to have his or her sponsorship money paid to the charity as a Gift Aid donation by, for example, ticking a box. The recommended method is to have the following boxes below the declaration for each sponsor to complete:
- sponsor’s full name
- sponsor’s full home postal address - as a minimum HMRC will accept the number (or name as appropriate) of their home and their full postcode
- amount pledged
- amount collected
- date collected
- tick box to have amount treated as a Gift Aid donation
The date when the sums collected were handed over to the charity should also be entered on the form. A copy of a model Gift Aid sponsored event form can be found at Sponsorship and Gift Aid declaration form.
Where a sponsor form is being passed around a workplace some donors may be reluctant to give their full home address. HMRC’s prepared to accept that the home address has been provided if donors enter, as a minimum, the name and number of their home, and their full postcode.
Where the participant banks money collected in their own account before sending a cheque to the charity, they should ensure that the sum on the cheque matches the amount collected on the sponsorship forms so that the charity is provided with a clear audit trail.
For particularly large sponsorship events, a charity can use the modified procedure set out in paragraph 6.6 on sponsored events.
HMRC’s happy to advise charities on how to operate Gift Aid for sponsorship events and to review draft sponsorship/declaration forms.
3.10.5 Charity collections
The money raised from collections for a charity - for example, from a charity event run in a workplace - will only be eligible for Gift Aid where the individual donors have made Gift Aid declarations. The people who organise the collection may not make a Gift Aid declaration in relation to the amounts collected as they didn’t donate the money.
Chapter 3.11 Gift Aid for companies
3.11.1 Companies (and unincorporated associations) can claim tax relief for qualifying donations paid to charities (bodies or trusts accepted as charities for UK tax purposes). New rules introduced in Finance Act 2014 s.35 and taking effect from 1 April 2014 mean that sports clubs registered with HMRC as a Community Amateur Sports Club (CASC) can also take advantage of this tax relief. Generally, relief for Gift Aid donations is available in the accounting period during which the donation is made, but there are special rules for companies wholly owned by charities.
3.11.2 Gift Aid donations made to charities and CASCs by companies are paid gross and so, unlike the individual Gift Aid Scheme, no tax is repayable to charities or CASCs. For a charity or CASC the donation is treated as potentially taxable income, but is exempt from tax provided the donation is applied for charitable purposes by a charity or qualifying purposes by a CASC.
3.11.3 Charities and CASCs receiving Gift Aid donations from companies should keep accurate accounting records of company donations received, so that they can identify these in their accounts and include them on their tax return.
Chapter 3.12 Tax treatment of companies making Gift Aid donations to charities or CASCs
3.12.1 When a company makes a qualifying donation to a charity or CASC, the amount paid can be set against profits for Corporation Tax purposes. The company can make a claim in its Corporation Tax Self-Assessment (CTSA) return to set the amount of the donation against its taxable profits, to the extent that it reduces the chargeable profit to nil.
3.12.2 Charitable donations can’t be used to create or add to a company’s trading losses, nor can excess charitable donations be carried forward or back although they may be surrendered as group relief.
3.12.3 The donor company should keep normal accounting records to support entries on its CTSA return along with any other relevant documentation for example, correspondence with the charity or CASC in relation to the donation such as a ‘thank you’ letter.
3.12.4 Non resident companies within the UK Corporation Tax regime can also make Gift Aid donations; this will generally apply to companies trading in the UK through a branch or agency. Non-resident companies that are only chargeable to UK Income Tax in respect of income arising in the UK can’t get Gift Aid relief on donations to charities or CASCs because corporate Gift Aid donations are only deductible against Corporation Tax profits.
Chapter 3.13 Qualifying charitable donations and restrictions on Gift Aid treatment
3.13.1 Gift Aid relief for donations made by companies only applies to payments which are ‘qualifying charitable donations’. A qualifying charitable donation is a donation to a charity or CASC consisting of a payment of a sum of money, subject to the restrictions outlined below.
3.13.2 There are certain restrictions on what constitutes a qualifying charitable donation and therefore the availability of Gift Aid relief for companies. A payment isn’t a qualifying donation if:
- it is a dividend or distribution of profits
- it is made subject to a condition as to repayment
- the company or a connected person receives a benefit which exceeds the ‘relevant value’ in relation to the payment
- it is conditional on or part of an arrangement involving the charity acquiring property (other than as a gift) from the company or a connected person
- it is made by a charity or CASC
Detailed guidance about the restriction relating to benefits received by a donor company, including definitions of ‘connected persons’ and the ‘relevant value’ test can be found in the section 3.17 ‘Benefits received by donors’.
On 1 June 2015 ABC Retailing Ltd donates £1,250 to a museum which is a charity.
As a consequence of the donation its 4 directors receive free entry to an event at the museum, worth £20 each. The benefit to connected persons of the company is £80 (4 × £20).
The value of the benefit received by the 4 directors is greater than the relevant value allowed, which is in this case 5% of the donation, £62.50.
The whole of the donation of £1,250 fails to be a ‘qualifying charitable donation’ for Gift Aid purposes.
Chapter 3.14 Companies wholly owned by a charity or CASC
3.14.1 Special rules apply to transactions between charities and CASCs and their wholly owned subsidiaries. Charities or CASCs contemplating the use of such structures should seek professional advice.
Charities and CASCs may set up wholly-owned subsidiary companies to carry out trading activities that fall outside the tax exemptions available to them. For example, a charity may set up a wholly-owned subsidiary to operate a retail trade through a network of charity shops. A CASC may set up a wholly-owned subsidiary for trading income eg for income received from bar takings or the private hire of club facilities.
3.14.2 These companies often enter into a Gift Aid arrangement with their parent charity, under which they agree or contract to pay to the charity or CASC a sum of money equivalent to some or all of their taxable profits.
3.14.3 When a company owned by a charity or CASC makes such a payment it may not be treated as a distribution of profit, but as a qualifying charitable donation under the company Gift Aid rules.
3.14.4 Company dividends paid to a charity or CASC are not donations. Dividends are distributions of the taxed profits of the company and don’t reduce the company’s Corporation Tax liability.
3.14.5 Since 1 April 2006, companies wholly owned by a single charity and Companies owned by 2 or more charities can use Gift Aid donations to donate in this way.
3.14.6 Since 1 April 2014, companies wholly owned by one or more CASCs can also use Gift Aid donations to donate in the same way.
3.14.7 Companies that are wholly-owned by a charity or one or more charities have 9 months from the end of an accounting period in which to pay the amount they want to donate to the charity as a qualifying charitable donation.
3.14.8 For accounting periods ending on or after 1 April 2014, companies that are wholly owned by one or more CASCs also have 9 months from the end of the accounting period in which to pay the amount they want to donate to the parent CASC as a qualifying charitable donation.
3.14.9 When the payment is made to the parent charity or CASC within 9 months of the end of a particular accounting period, the company can elect to treat the donation as paid in that earlier accounting period - rather than getting the tax relief for the accounting period during which it was actually paid. This allows a company owned by a charity or CASC sufficient time to calculate its Corporation Tax profits and, if it wishes, to pay the parent charity or CASC an amount equal to its entire profit and reduce its Corporation Tax liability to nil.
3.14.10 A company owned by charity or CASC that wants to take advantage of this 9 month extension must make a claim to have the donation treated as paid in an earlier accounting period within 2 years of the end of the accounting period during which the donation is actually paid - the claim can be made in the Corporation Tax return or an amended return for the accounting period to which the payment was carried back.
The shares in A Enterprises Ltd are all owned by charity A. The company’s accounting period ends on 31 December.
The taxable profit of A Enterprises Ltd for the accounting period ended 31 December 2014 is £17,000.
On 1 August 2015 A Enterprises Ltd makes a Gift Aid donation of £17,000 to charity A which is within 9 months of the end of the accounting period.
On 1 December 2016 A Enterprises Ltd makes a claim for that donation to be treated as if it was paid during the year ended 31 December 2014.
As the claim is made before 31 December 2016 which is, within 2 years of the end of the accounting period during which the payment is made. The donation can be deducted, as a charitable donation, in the Corporation Tax computations for the accounting period ended 31 December 2014 and the Corporation Tax payable for the accounting period ended 31 December 2014 is reduced to nil.
3.14.11 Residual profits, are not eligible for tax relief because they are an amount left over when a company donates less than all of its profits within 9 months of the end of an accounting period.
3.14.12 The 9 month carry-back only applies to companies that are wholly owned by a charity or CASC. In the case of a company limited by share capital, this means that all the ordinary share capital must be owned by one or more charities. The share capital can be owned directly or indirectly for example, through an intermediate company.
3.14.13 The 9 month carry-back provisions can also apply to companies limited by guarantee as long the only person(s) who are beneficially entitled to participate in the company’s profits and share in the assets when the company is wound up are:
- a charity
- a CASC
- a company wholly owned by a charity (or CASC)
- a company owned by one or more charities (or CASCs)
The memorandum and articles of association of a company limited by guarantee will usually confirm if the company meets the conditions outlined above.
Chapter 3.15 Estimated Company donations
3.15.1 Charity or CASC owned companies can estimate their expected Corporation Tax profits and make a qualifying donation based on that estimate with the intention of reducing any Corporation Tax liability to nil. Where the estimated qualifying donation to its parent charity or CASC is more than its actual profits, then the excess part of the donation may be repaid by the charity or CASC. The original donation is not regarded as being made with ‘a condition as to repayment’ and the amount repaid will not be treated as non-charitable expenditure by the charity or CASCS provided the:
- company is wholly-owned by the charity, or by a number of charities that include the charity
- charitable payment is an amount which the company estimates to be the amount that will reduce the company’s taxable total profits for the accounting period in which the payment is made (‘the relevant period’) to nil
- only reason that the charity or CASC makes the repayment is to adjust the amount of the company’s donation so that it is an amount that will reduce the company’s taxable total profits for the relevant period to nil
- repayment is made no later than 12 months after the end of the relevant period
Chapter 3.16 Companies only partly owned by a charity or CASC
3.16.1 This extended Gift Aid treatment, that allows donations after the end of the accounting period or estimated donations to be finalised after the end of the accounting period, does not apply to companies which are only partly owned by a charity or CASC, for example, ‘joint venture’ companies jointly owned by a charity or CASC, and other companies not wholly owned by a charity or CASC. These companies can still make donations to charities and CASCs and obtain Gift Aid relief. However, the normal Corporation Tax rules apply, including the restrictions in paragraph 3.13.2 and these companies can only claim a Corporation Tax deduction for a charitable donation for the accounting period during which the donation is paid to the charity or CASC.
Chapter 3.17 Inflated member-related expenditure by companies that are wholly owned by a CASC
3.17.1 Special rules apply to transactions between CASC owned subsidiary companies, CASC members and their connected persons. Connected persons includes close relatives of a CASC member or companies controlled by the member. CASCs undertaking such transactions may need to seek professional advice.
Section 35 of the Finance Act 2014 allows tax relief on donations by companies to CASCs made in accounting periods ending on or after 1 April 2014. This legislation includes provisions which are intended to deter abuse of the relief by companies that are under the control of CASCs. Where there is abuse, the new provisions will result in some donations, or parts of donations being brought into the charge to tax.
UK Charities are regulated by the Charity Commission for England and Wales, the Office of the Scottish Charities Regulator or the Charity Commission for Northern Ireland. CASCs are not regulated by an external organisation. These rules have been introduced to bring the situation with CASCs closer to that which exists with charities.
3.17.2 The provisions introduce the concept of ‘inflated member-related expenditure’ and apply where a company that is wholly owned or controlled by one or more CASCs:
- employs a member of a parent CASC
- purchases goods or services from a member of a parent CASC
on terms that are advantageous to the member, a company controlled by a member or any persons connected with the member, that would not be entered into with a third party (that is, are not at ‘arm’s length’).
3.17.3 If a company incurs inflated member-related expenditure, the amount of tax relief on any gift of money from that company to its parent CASC is reduced.
The amount of the reduction is the total amount of the Inflated Member Related Expenditure.
When a company owned by a CASC incurs inflated member-related expenditure it will be liable to pay Corporation Tax on the expenditure.
The amount of the reduction is the whole of the related expenditure, not just the excess included in that amount.
3.17.4 If the amount of the inflated member-related expenditure is greater than the qualifying payment made in the same accounting period, then any excess expenditure is carried back to adjust qualifying payments for up to 6 earlier years. The excess expenditure is set off against the qualifying payments made by the company starting from the latest year and working back.
3.17.5 Where the expenditure, taken as a whole, is beneficial to the company rather than to the third party, then that expenditure will not fall within the definition of ‘inflated member-related expenditure’. The example below illustrate what is meant by ‘beneficial’ under these rules.
A company, owned and controlled by a CASC buys supplies from one CASC member and rents property from another. Both of the payments are more than what would be expected under an arm’s length arrangement. As a result CASC members benefit financially to the detriment of the company and its parent sports club.
In the Accounting Period Ending (APE) 31 January 2016, the subsidiary company incurred total costs of £37,500 and £12,500 for the supply of sporting equipment and rent, respectively.
In respect of the same APE the subsidiary made a qualifying gift of its entire net profit of £75,000 to the CASC.
Because neither of the arrangements was at arm’s length the value of the qualifying gift would be reduced by £50,000 (37,500 + £12,500).
Accordingly, the subsidiary would become liable to pay corporation tax on the profit of £50,000, rather than nil, despite the company donating its entire net profit to the CASC.
Chapter 3.18 Benefits received by donors and connected persons
3.18.1 When someone makes a donation to your charity or CASC, you may want to give them (or people connected to them) a token of your appreciation - a ‘benefit’. As long as the value of the benefit doesn’t exceed certain limits the donation will still qualify for Gift Aid. If the benefit value exceeds these limits the donation won’t qualify for Gift Aid.
In order to decide whether a donation to your charity can qualify under the Gift Aid Scheme, you’ll need to determine:
- whether the donor, or a person connected with the donor, receives any benefits, other than of the type detailed in paragraph 3.27 below, which can be ignored
- if any benefits received are associated with the donation, and if so whether their value exceeds the limits in the donor benefit rules
3.18.2 A benefit is any item or service: provided by the charity or a third party to the donor or a person connected with the donor and which is associated with a donation.
3.18.3 A person is connected with the donor if that person is:
- the wife or husband or civil partner
- a relative (eg brother, sister), ancestor (eg mother) or lineal descendant (eg grandson)
- the wife or husband or civil partner of a relative
- a company under the control of the donor, or under control of connected persons
3.18.4 A benefit is ‘associated with a donation’ if it’s received by the donor or a connected person in consequence of making the donation. In other words, there has to be some connection between the fact that the donor has made a donation and the benefit being received.
3.18.5 If goods or services are provided for the donor by an unconnected third party entirely unsolicited by either the charity or the donor, such goods or services won’t be ‘associated with the donation’ for the purposes of these rules.
Chapter 3.19 Things that are not a benefit
Some items don’t count as benefits, for example:
3.19.1 An acknowledgement of a donor’s generosity, for example in a printed brochure or on a plaque - however this must be a simple acknowledgement and not an advertisement for the donor’s business. So a small commemorative type plaque recording the name of the donor and that they provided a donation would be acceptable but a large sign which also promoted the donor’s business would be an advert and so not allowed.)
A right of admission to view charity property
3.19.2 A right of admission to view charity property isn’t treated as a benefit if:
- it’s in return for a donation of at least 10% more than the admission charge for an equivalent right of admission
- if the admission is for a period of at least a year at the same times as the general public can gain admission
3.19.3 This doesn’t apply if the:
- benefit extends beyond a right of admission to view charity property (for example a right of admission to a property to attend a concert), see detailed guidance about donations that attract a right of free entry to view charity property
- benefit extends beyond the donor and members of his or her family
3.19.4 In practice, charities:
- will often want to lay down rules for the maximum number of people that a donor may bring into the charity’s premises
- can’t be expected to check the identity and family relationship of people who seek admission to their premises
3.19.5 Therefore rules that are intended to restrict the right of admission to family groups, such as a right of admission for the donor and up to 2 other adults and 6 children, satisfy the ‘members of the family’ test.
Fund raising events in honour of a donor
3.19.6 Charities that receive a large donation from a donor will often want to give some form of ‘thank you’ to the donor, for example they may hold a gala dinner to which they’ll invite the donor as ‘guest of honour’, their family, friends, and other potential donors. If the purpose of the dinner is to both celebrate the donation and promote the charity to stimulate more donations from the others attending the event this is a fund raising event and wouldn’t be treated as a benefit to the donor: the dinner is simply an opportunity to help raise more funds. However if the dinner is a private affair limited to the donor and a few guests and there’s no significant element of additional fundraising involved then that’s simply a private dinner for the donor and that’s a benefit. Trustees of charities considering holding fund-raising events of this kind can find further guidance in paragraph 3.52.
3.19.7 Sometimes charities want to name a building or part of a building after a donor who’s provided a substantial part of the funds to pay for the building. There’s no monetary value attached to the naming of a building after an individual and therefore there’s no benefit for Gift Aid purposes.
Chapter 3.20 The limits on the value of benefits
3.20.1 There are 2 limits that apply to the value of the benefits that a donor, or a person connected with the donor, may receive in return for making a donation. These are worked out using the ‘relevant value’ test and the ‘aggregate value’ test:
Relevant value test - sets the maximum value of a benefit for a particular amount of donation as set out in the table in paragraph 3.21.1.
Aggregate value test - As well as passing the relevant value test above, the benefits must also pass the aggregate value test. This says that the value of benefits received by the same donor in one tax year as a result of making more than one donation to the same charity in that tax year mustn’t exceed:
- £500 for donations made between 6 April 2007 and 5 April 2011
- £2,500 for donations made on or after 6 April 2011
3.20.2 If the value of the benefits received exceeds either of these limits, the donation won’t qualify for Gift Aid.
Chapter 3.21 The relevant value test
3.21.1 The limits for the relevant value test are:
Benefit limits for donations
|Amount of donation||Maximum value of benefits|
|£0 - £100||25% of the donation|
|£101 - £1,000||£25|
|£1,001+||5% of the donation (up to a maximum of £2,500)|
These limits apply separately to each donation.
3.21.2 Special rules apply to ‘annualise’ the amount of certain donations and the value of certain benefits for the purposes of applying the limits. Broadly, in the case of subscriptions under a membership scheme, the limits normally apply by reference to the amount of the annual membership subscription and the value of the annual membership benefits. This way:
- a charity can tell whether the benefits in its membership scheme will exceed the limit simply by looking at the annual membership subscription and the annual membership benefits
- the result will be the same whether the donor pays the subscription in a single payment, or half-yearly, quarterly, or monthly
3.21.3 Annualising applies where a benefit:
- consists of the right to receive benefits at intervals over a period of less than 12 months relates to a period of less than 12 months
- is one of a series of benefits received periodically in consequence of making a series of donations at intervals of less than 12 months
- is a one-off benefit received in consequence of making a donation that is one of a series of donations made at intervals of less than 12 months
3.21.4 In the first 2 categories, the amount of the donation and the value of the benefit are annualised, so that the limits in the table at paragraph 3.29.1 apply by reference to the annual amount and the annual value respectively. In the final category, the amount of the donation, but not the value of the benefit, is annualised, so that the limits in the table above apply by reference to the annual amount of the donation and the actual value of the benefit.
3.21.5 Annualising is done by:
- multiplying the amount of the donation or the value of the benefit by 365
- dividing the result by:
- the number of days in the period of less than 12 months
- the average number of days in the intervals of less than 12 months
In practice, where the period or the intervals are measured in calendar months, annualising can be done by reference to calendar months, rather than days.
3.21.6 The following examples illustrate how the relevant value test works
Ms Smith makes 4 unconnected donations to a wildlife charity as follows:
|6 May 2016||£30||nil|
|21 June 2016||£10||nil|
|18 August 2016||£25||nil|
|5 February 2017||£80||fashion book worth £30|
As no benefits are received in consequence of making any of the first 3 donations, they all pass the relevant value test.
The book received in consequence of making the fourth donation doesn’t fall into any of the categories above, so annualising doesn’t apply. As the £30 value of the book exceeds the benefit limit of £20 (25% of the £80 donation) the fourth donation fails the relevant value test and doesn’t qualify as a Gift Aid donation.
Mr Patel makes a single payment of £240 to a medical charity, in consequence of which he receives the right to receive 12 free monthly computer magazines worth £2.50 each. The benefit of the right to receive the magazines is therefore worth £30 (£2.50 x 12).
The right to receive the magazines doesn’t fall into any of the categories above, so annualising doesn’t apply. As the value of the right to receive the magazines (£30) exceeds the limit of £25 (that is the limit for donations of £100 to £1,000) the donation fails the relevant value test and so can’t qualify as a Gift Aid donation.
Mrs O’Connor makes a single payment of £120 to the same medical charity, in consequence of which she receives the right to receive 6 free monthly computer magazines worth £2.50 each. The benefit of the right to receive the magazines is therefore worth £15 (£2.50 x 6).
The right to receive the magazines falls into the first category at paragraph 3.29.3 (a right to receive benefits at intervals over a period of less than 12 months) so annualising applies. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £240 (£120 x 12 ÷ 6) and the annual value of the right to receive the magazines £30 (£15 x 12 ÷ 6). As the annual value of the right to receive the magazines exceeds the limit of £25 (that is the limit for donations of £100 to £1,000) the donation fails the relevant value test and so can’t qualify as a Gift Aid donation.
Mr Green makes a single payment of £120 to a performing arts charity, in consequence of which he receives the right to a 5% discount on theatre tickets purchased in the next 6 months. The benefit of the right to the discount is worth, say, £15.
The right to the discount falls into the second category above (a benefit relating to a period of less than 12 months) so annualising applies. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £240 (£120 x 12 ÷ 6) and the annual value of the right to the discount £30 (£15 x 12 ÷ 6). As the annual value of the right to the discount exceeds the limit of £25 (that is the limit for donations of £100 to £1,000) the donation fails the relevant value test and so can’t qualify as a Gift Aid donation.
Miss Tomkins makes monthly payments of £20 to a medical charity under an open-ended standing order, in consequence of which she receives a free monthly computer magazine worth £2.50.
The right to receive the magazines falls into the third category above (a benefit which is 1 of a series of benefits received in consequence of making a series of donations at intervals of less than 12 months) so annualising applies. The limits in the table above therefore apply by reference to the annual amount of the donation £240 (£20 x 12) and the annual value of the right to receive the magazines £30 (£2.50 x 12). As the annual value of the right to receive the magazines exceeds the limit of £25 (that is the limit for donations of £100 to £1,000) the donation fails the relevant value test and so can’t qualify as a Gift Aid donation.
Mr Wong makes monthly payments of £2 to a charity under an open-ended standing order. In consequence of starting the payments he receives a one-off benefit of a free pen worth £5.
The pen falls into the third category in the paragraph above (a one-off benefit received in consequence of making a donation which is one of a series of donations made at intervals of less than 12 months) so annualising applies to the donation, but not the benefit. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £24 (£2 x 12) and the actual value of the pen £5. As the value of the pen doesn’t exceed the limit of £6 (that is 25% of the £24 annual donation) the donation passes the relevant value test and so can qualify as a Gift Aid donation.
Chapter 3.22 The aggregate value test
3.22.1 In addition to satisfying the relevant value test, the value of the benefits received in consequence of a donation must also satisfy the aggregate value test if the donation is to qualify as a Gift Aid donation. In other words:
- the value of the benefits received in consequence of making the donation
- plus the value of any benefits received in consequence of any Gift Aid donations by the same donor to the same charity earlier in the same tax year
- must not exceed £500 - for donations made between 6 April 2007 and 5 April 2011 or £2,500 for donations made on or after 6 April 2011
The value of benefits isn’t annualised for the purposes of the aggregate value test. It’s the actual value, as opposed to an annual value, of the benefits that counts.
3.22.2 For example, suppose in example 1 above Ms Smith makes 2 further donations to the charity in the tax year 2012 to 2013 as follows:
|6 May 2012||£30||nil|
|21 June 2012||£10||nil|
|18 August 2012||£25||nil|
|5 February 2013||£80||fashion book worth £30|
|11 March 2013||£9,600||weekend break worth £450|
|4 April 2013||£50,000||package of benefits valued at £2,500|
As the value of the weekend break doesn’t exceed the limit of £480 (ie 5% of the £9,600 donation) the fifth donation passes the relevant value test. Furthermore, it passes the aggregate value test (it’s not aggregated with the benefit worth £30 received in consequence of the fourth donation, because that donation didn’t qualify as a Gift Aid donation).
As the value of the package of benefits doesn’t exceed the limit of £2,500 (ie 5% of the £50,000 donation) the sixth donation passes the relevant value test. However, it fails the aggregate value test, because the value of the package of benefits plus the value of the weekend break exceeds £2,500. (£450 + £2,500 = £2,950). Therefore, the sixth donation can’t qualify as a Gift Aid donation. The other 5 donations are unaffected.
Chapter 3.23 Valuing donor benefits
3.23.1 The valuation of donor benefits can be difficult. However:
- where an item or service is sold to the public, the benefit will be the sale price to the public - for example, for a ticket to attend a performance by an opera society that costs £20, the benefit will be £20
- in other cases the charity will need to determine how much someone providing the benefit at arm’s length would charge for it - evidence might be obtained from similar commercial transactions
3.23.2 The value of a benefit is always the value to the recipient, not the cost to your charity or CASC of providing the benefit. Even though your charity or CASC may get a discount on the cost of any benefits you give to donors, the benefit must be given its full value when working out whether a donation qualifies for Gift Aid.
As an incentive, new members receive a teddy bear (on sale at £5 but cost £2 to the shop owner) in return for paying their membership subscription. The teddy bear is supplied direct to new members free of charge to the charity by a local shop owned by one of the charity’s trustees on presenting a voucher given to new members by the charity.
The benefit is £5 (cost to the public if they purchased a bear).
Valuing goods and services
3.23.3 For many benefits the value is simply the retail value of the item or service. For example if a donor receives a free theatre ticket, the value of the benefit is the face value of the ticket.
3.23.4 Where a retail value can’t be found, your charity or CASC must work out how much someone would be prepared to pay for the item or services - looking at similar commercial transactions will help.
Valuing attendance at a non-ticketed event
3.23.5 Where a benefit takes the form of attendance at an event that isn’t open to the public (so that there’s no ticket price) and which isn’t a fund raising event of the kind described above the benefit should be valued by reference to the cost to the charity of staging the event and the number of people in attendance.
Valuing benefits in return for life membership subscriptions
3.23.6 Where the benefit is a discount on goods or services - which an individual member may or may not take advantage of - the valuation can be based on the average take-up of the benefit by all your charity’s members. In order to establish the average benefit the charity must keep complete records of all the discounts received by its members.
Where a benefit is given in return for a life membership subscription the value of all benefits that’ll be received over the lifetime of the membership must be estimated when valuing the benefit. For practical purposes the benefits received over the first 10 years of membership will be taken as the benefits received over the life of the member when deciding whether the benefit limits have been breached. In general, the benefits for a 12 month period are determined and multiplied by 10.
Valuing benefits which are discounts
A charity has 500 members and offers a 10% discount on sales in its shop. The charity keeps complete records of discounts given to its members and the total discounts are £5,295 in the year.
The average benefit per member is £10.59 (£5,295 ÷ 500). This benefit must apply to all members whether they’ve received a discount or not. The alternative is to keep records to quantify the actual discount benefit received by each individual member.
A charity has 300 members and offers a 10% discount on sales in its shop. The charity fails to keep records of members’ discounts.
The benefit is open ended and so the membership subscriptions fail as Gift Aid donations as the charity can’t demonstrate that the maximum benefit available isn’t exceeded.
Chapter 3.24 Provision of literature
3.24.1 Where a charity sends literature to its donors, the value of the literature is nil provided the:
- material is produced solely for the purpose of describing the work of the charity whether produced by the charity, or a third party
- material is relevant to and distributed exclusively in furtherance of the objects of the charity
The fact that the literature has a cover price and is also on sale to members of the public isn’t relevant. This means that literature like newsletters, bulletins, annual reports, journals, magazines, members’ handbooks and programmes of events will generally carry no value for the purposes of the donor benefit rules.
A conservation charity provides its members with a free copy of the BBC’s nature magazine. The magazine costs £4.50 but is supplied to the charity at a cost of £3 per copy.
The value of the benefit is £4.50. The magazine may be connected to the purposes of the charity but it’s neither about the specific work of the charity or produced by the charity.
Chapter 3.25 Split payments
3.25.1 When a benefit given to a donor would exceed the benefit limits - so Gift Aid couldn’t be claimed - it may be possible for the donor’s payment to be split between an amount to cover the cost of the benefit and an amount that is treated as a gift. To do this the cost of the benefit is taken away from the total amount given to the charity and the remainder treated as the donation. Gift Aid can only be applied to the remainder if:
- the benefit can be purchased separately
- the donor is aware of the value of the benefit at the time the donation is made
3.25.2 The charity and donor should keep evidence of how the payment was to be split for example a copy of a dated letter accompanying the payment. Alternatively, separate payments could be made.
An arts charity has a patron scheme where, for a donation of £1,000, an individual can become a patron. In return the charity provides the benefit of ten free tickets (value £20 per ticket at the box office) for forthcoming events. In this case then the benefit received by the donor for the free tickets is £200.
The maximum benefit the donor can receive for a donation of £1,000 is £25. As the benefit received by the donor for the free tickets is £200 the Gift Aid benefit limit is exceeded and the whole of the donation does not qualify for Gift Aid.
However, the donor’s aware that the cost of the benefit of the ten free tickets is £200 and so elects to split the donation and treat £200 as payment for the tickets and the balance of £800 as a Gift Aid donation.
The situation is as in Example 1:
- ten free tickets - total value £200 (£20 per ticket)
And the charity also offers the following benefits:
- dinner with the director - estimated value £30 but attending the dinner isn’t open to the general public
- an unlimited amount of tickets at a discount of 10% (no records kept by the charity)
The benefit is clearly in excess of the benefit limit of £25 as it amounts in excess of £230 - £200 for the tickets and an estimated £30 for the dinner. However, the benefit can’t be bought for the following reasons:
- all the benefits can’t be quantified at the outset - the benefit from the discounts isn’t known - nor is the actual value of the dinner
- the dinner isn’t available to the public and so can’t be purchased separately
Items bought at a charity auction
For auction items, the option to split the payment only applies where the:
- item’s commercially available
- donor is aware, at the time they make a successful bid that the item could be purchased separately and for what price
Your charity or CASC and the donor should keep evidence of this arrangement - for example an exchange of letters.
Chapter 3.26 Donations to support missionaries and other full-time workers for a charitable cause
3.26.1 Gift Aid only applies to unfettered gifts to a charity for its charitable purposes. Donors earmarking money for the support of relatives are, in principle, no different from those generally making payments to support other relatives, for whatever reason. These aren’t eligible for tax relief. Once a Gift Aid payment has been received it’s for the charity to show that its income has been applied for charitable purposes only. Gifts given on condition, rather than hope or expectation, that they’ll be used to feed and clothe a relative are likely to breach the benefits rules for Gift Aid.
3.26.2 HMRC takes the view that donations to cover the costs incurred by a charity such as a missionary society in supporting the relative of the donor, as a missionary, can qualify under the Gift Aid Scheme provided the missionary society isn’t merely channeling a donation to the donor’s relative. Where, for example, a missionary society says to its workers ‘It costs us £10,000 a year to support you while you carry out your charitable work. We look to you to raise at least this amount of funds for the society through donations from family, etc’ the donations may qualify under the Gift Aid Scheme. Where, on the other hand, a missionary society says to its missionaries ‘It is up to you to support yourself while you carry out your charitable work, with the help of your family, etc. If your family wishes to send you money they can do so via the Society’ payments will not qualify under the Gift Aid Scheme.
3.26.3 This situation equally applies where a church, for example, supports the charitable work of a Christian worker. The Christian worker is unlikely to be in the employment of the Church and so the onus in demonstrating that payments made to particular individuals are unfettered and only applied for charitable purposes falls to the trustees of the church.
Chapter 3.27 Keeping Gift Aid records
3.27.1 In order to operate the Gift Aid Scheme, charities need to keep records to show how much has been received from each donor who’s made a declaration. Charities must keep sufficient records to show that their tax reclaims are accurate. In other words, they must keep records that enable them to show:
- an audit trail linking each donation to an identifiable donor who has given a valid Gift Aid declaration
- that all the other conditions for the tax relief are satisfied, for example provision of benefits
3.27.2 If a charity doesn’t keep adequate records it may be required to pay back to HMRC the tax reclaimed, with interest. It may also be liable to a penalty under the Self Assessment rules.
Chapter 3.28 Records to be maintained
3.28.1 The form of records to be kept isn’t prescribed in the legislation. In practice, it will depend on the size of the charity, the number of donors and the kind of systems used.
3.28.2 When HMRC audit a repayment claim, the auditor will normally review a sample of the donations on which a charity is claiming Gift Aid. For smaller charities all donations may be looked at. For each donation reviewed, the auditor will ask to see:
- the relevant Gift Aid declaration
- a copy of any written statement that the charity is required to send to the donor
- all correspondence with the donor relating to the donation
- notification by the donor of a change of name or address
- notification by the donor of the cancellation of the Gift Aid declaration
HMRC will accept that a written confirmation has been issued where the charity can show a standard letter template in an acceptable format and a list of the donors to whom the letter was sent.
In the case of recorded oral declarations the auditor will ask to listen to the recording of the declaration.
Chapter 3.29 Means of keeping records
3.29.1 The charity doesn’t have to keep records on paper. They may be held on the hard drive of a computer, floppy disc or CD-Rom, or stored on microfiche. If records are kept on computer, it’s advisable to make regular back-ups and store these in a different location to the computer. Further details on the procedures to follow when transferring original records onto microfiche or an electronic medium can be found in paragraph 7.4 of Chapter 7.
Chapter 3.30 How long records should be kept
3.30.1 The time limits for keeping Gift Aid records depend on how the charity is treated for tax purposes. Most charities will be treated as companies for tax purposes. A charity will only be a trust for tax purposes if it was set up by a trust deed or a will.
All charities will need to keep enduring Gift Aid declarations covering ongoing donations permanently. If the donations cease then the time limits below apply from the date of the last donation.
A single Gift Aid declaration may apply to more than one donation, so a charity will need to work out when the last gift specified on a particular declaration is received, and keep the declaration long enough to satisfy the rules set out below.
3.30.2 A charity run as a charitable company, which most are, must keep tax records (including Gift Aid declarations and records) until 6 years after the end of the accounting period they relate to.
For example if a charitable company prepares its accounts to 31 December 2007 and makes a Gift Aid repayment claim for that period during 2008, it must keep the records until at least 31 December 2013.
If HMRC asks the charity questions about its tax return or repayment claim, the charity will need to keep the records until the enquiries are finished.
3.30.3 Charitable trusts should keep tax records (including Gift Aid declarations and records) until the later of:
- 6 years after the end of the tax year they relate to
- 12 months after the charity makes a Gift Aid repayment claim for that tax year
If the charity is asked to make a tax return there are different rules about how long records must be kept for.
Changes to time limits
3.30.4 If before January 2012 you followed previous guidance and destroyed records between 4 and 6 years old you won’t be penalised. However, if you have kept your records from that period you must continue to keep them as you may be penalised if you destroy records which you’re required to keep.
If HMRC asks the charity questions about its tax return or repayment claim, the charity will need to keep the records until the enquiries are finished.
Chapter 3.31 Using envelopes to collect cash donations
3.31.1 Charities may choose to collect cash donations in envelopes, such as church stewardship envelopes, so that they can show an audit trail linking the donation to the donor. For one-off donations, charities may choose to pre-print the Gift Aid declaration on the envelope for completion by the donor. If the donor is a regular supporter, the charity may already hold his or her Gift Aid declaration, in which case the envelope need simply contain either:
- the donor’s name
- some other unique identifier, such as a reference number which can be cross-referenced to a donor register
3.31.2 Where a unique identifier’s used, such as a reference number, ideally this should be unique to the donor. In practice, where envelopes containing the same unique identifier are used by the donor and his or her spouse and minor children, it can assumed that all the donations are from the donor, unless there is evidence to the contrary.
3.31.3 When the envelope is opened and the contents are counted, an official of the charity should record the sum that it contained both:
- on the envelope
- in a donor record
3.31.4 Charities should retain for the period set out in Chapter 7
- all envelopes on which a Gift Aid declaration is printed
- a sample of other envelopes (normally for 1 month of the year)
- the donor record
Chapter 3.32 Donations from joint bank accounts
3.32.1 If a charity receives a donation drawn on a joint bank account, and it’s not been given a Gift Aid declaration by both account holders, it’ll need to determine whether the donation is from the donor who has given a Gift Aid declaration. The charity may, however, assume that the donation is from the person who has made the Gift Aid declaration, even if it’s authorised by the other account holder, unless it holds evidence to suggest that the donation is from that other account holder.
3.32.2 Similarly, if a credit card donation is received drawn on an account in respect of which there are joint authorised signatories, it can be assumed that the donation is from the authorised signatory who’s made a Gift Aid declaration unless there’s evidence to suggest that the donation’s from the other authorised signatory.
3.32.3 If there’s any doubt whether the donation’s from the person who signs the cheque, etc or authorises the transaction, the charity should ask them to confirm whether the donation is from them.
Chapter 3.33 Particular situations
3.33.1 The purpose of this section is to explain how the Gift Aid Scheme works in particular situations.
In all cases it’s important to remember that Gift Aid applies to free will gifts of money made by an individual who’s paid tax to cover the donation to the charity.
The tax reclaimed by the charity under Gift Aid must be traceable to the individual donor and to their tax record. The donor must always know how much money they’ve donated to the charity in order to confirm that Gift Aid is eligible on the donation and they’ve paid enough tax to cover the donation. Higher rate taxpayers need to know the exact amount of the donation if they wish to reclaim tax on the difference between their marginal rate of tax and the basic rate of tax.
Chapter 3.34 Educational trusts
3.34.1 This section explains when educational trusts (Trusts) can claim Gift Aid in respect of payments made to such Trusts by parents and persons connected to a pupil.
3.34.2 A Trust is established to provide education for children as an alternative to state education. Parents may pay for textbooks, exercise books, exam fees and consumable materials. However, they’re often not required to pay any set fees to cover the costs of tuition and other overheads, but instead may make payments described as donations.
3.34.3 The payment of fees to a charity isn’t a gift to charity and so fees paid to a Trust aren’t eligible for the Gift Aid Scheme. Whether non-fee payments (donations) made by parents (and persons connected to them) to a Trust qualify as Gift Aid payments depends upon the surrounding circumstances and the situation for each Trust is judged on its own merits.
3.34.4 There’s a cost in providing education for a child and if that cost is met in consequence of the Gift Aid payments being made to the Trust then that cost is a benefit for the purposes of the Gift Aid Scheme. This includes the cost of tuition, heating and lighting of premises and other administrative costs, which would be taken into account by a private school in setting fees.
Whether or not a benefit is received ‘in consequence of’ the Gift Aid payments is a question of fact to be determined in the light of the surrounding circumstances. In particular, it’s important to consider whether the Trust would be able to meet the costs of providing the education in the absence of the donations.
In considering whether the level of fees is sufficient to cover operating costs trusts can take account of reliable, ongoing income sources such as endowments, but not one-off or periodic donations or grants where no binding commitment exists.
3.34.5 As far as alternative sources of funding are concerned, these are relevant only in as much as they form part of all the circumstances a court might look at in deciding whether the overall funding structure was genuinely able to maintain the activities of the charitable trust to the extent that additional contributions from individuals receiving a benefit were unnecessary.
3.34.6 Where the trust has a genuine fee structure in place HMRC will accept that the benefit of receiving education arises from payment of the fees. Consequently, the receipt of education wouldn’t be received as a consequence of making donations over and above the fees and so those donations could qualify for Gift Aid. A genuine fee structure is one where fees are charged in respect of all students and the fees are set at such a level that enables the Trust to operate without needing additional support.
3.34.7 Where there’s no fee structure or only nominal fees are charged, insufficient to enable the trust to operate without additional donations the additional donations give rise to a benefit. Such consequential benefits will generally be in excess of the benefit limits for donations made by parents and persons connected to them and so the donations will usually fail as Gift Aid payments.
3.34.8 Where there’s no fee structure or only nominal fees are charged, but sufficient alternative, unconnected, funding sources can be clearly identified, there will be no benefit arising as a consequence of donations from persons connected with the children receiving education. In situations where this is clearly the case, providing the other Gift Aid criteria are met, Gift Aid relief might be available on those donations.
Chapter 3.35 Educational school trips
3.35.1 This section is intended for charitable schools and Parent Teacher Associations (PTAs) who want to know if Gift Aid can be used in respect of voluntary contributions toward educational school trips.
3.35.2 In schools, other than independent fee paying schools, the education provided wholly or mainly during school hours is free. This means that head teachers may not impose a charge on parents for any visit that is undertaken as part of the National Curriculum and occurs during school hours. The head teacher may, however, ask for a voluntary contribution.
Parents must be made aware that the contribution isn’t compulsory, and the children of parents who don’t contribute must not be discriminated against. It’s permissible for the school to ask parents to contribute more than the minimum amount in order to subsidise those pupils whose parents haven’t contributed. However, if there aren’t enough voluntary contributions and the shortfall can’t be made up, the visit may have to be cancelled. Such voluntary contributions to charitable schools or PTAs may be eligible for tax relief under the Gift Aid Scheme, provided the usual requirements of the scheme are satisfied and in particular:
- parental contributions are made on the basis that they’re not refundable (and aren’t in any event refunded) if the trip doesn’t go ahead or if their child doesn’t go on the trip
- any benefit arising from the school trip doesn’t exceed the maximum level of permissible benefit for the donation as explained below
For a donation of £0 - £100 the value of the benefits must not exceed 25% of the donation. For a donation of £101 - £1,000 the value of the benefits must not exceed £25.
Benefits include travel costs, trip insurance, cost of entry and associated educational material, cost of food and drink supplied and any other costs associated with the trip (costs averaged per pupil if appropriate).
In general, however, it is likely that the benefits associated with a school trip contribution will exceed the maximum level of permissible benefits and so the donation will not come within the Gift Aid Scheme.
The cost of an educational trip to a local museum amounts to £8 (transport £5 entry £2 and brochure £1). The school asks for a voluntary contribution of £10. The payment of £10 can’t be made under the Gift Aid Scheme as the benefit of £8 exceeds the 25% limit (80%).
However, where a payment is made in excess of the requested contribution the excess can be Gift Aided provided the requested contribution meets the cost of the trip (the benefit).
The position is the same as in example 1 but a parent makes a voluntary contribution of £15 instead of the requested £10. The additional £5 can be made as a Gift Aid payment.
Chapter 3.36 Church collections
3.36.1 Whether or not collections made for a particular charity by churches (which are themselves charities) can fall within the churches’ Gift Aid Scheme will depend on the particular circumstances.
3.36.2 If the church hasn’t exercised any discretion in collecting the donations and the donations are merely given to the church to simply pass on to a particular charity then the:
- church has no entitlement to the donations (and they don’t form part of the church’s income)
- church is merely acting as a conduit and it’s the charity that’s the donee
- charity must claim any Gift Aid tax relief (subject to the normal requirements, Gift Aid declaration and audit trail)
3.36.3 However, if the church exercises its discretion and decides to open a fund for donations to a particular charity, then the:
- fund is a restricted fund of the church
- church is the donee and the donations form part of the church’s income
- church is able to claim any Gift Aid tax relief (subject to the normal requirements)
3.36.4 The church is legally obliged to pass the tax associated with a Gift Aid payment to the charity. The donor would have made their donation in expectation that both the Gift Aid donation and the associated Gift Aid tax would go to the charity for which the collection was made.
Chapter 3.37 Membership subscriptions
3.37.1 There’s a statutory requirement, under Gift Aid, for payments to be gifts. This means that payments that are made to acquire goods or services aren’t eligible for Gift Aid. However, there are rules within the Gift Aid legislation that allow charities to provide donors with token benefits, within specified limits, in recognition of their gifts.
3.37.2 Most membership subscriptions aren’t gifts, they’re made to gain access to the facilities and services provided by the charity. However, membership subscriptions paid to charities that secure voting rights and the right to attend a charity’s AGM are gifts provided they meet the conditions in the next paragraph. These payments will, of course, still have to satisfy the benefit rules referred to above.
3.37.3 The conditions referred to are that the:
- payments do no more than secure membership of the charity
- payments don’t secure a right to personal use of any facilities or services provided by the charity
3.37.4 The provision to members of, for example, periodic newsletters explaining the work of the charity, or opportunities to visit and view the work of the charity wouldn’t breach these conditions. So, a wildlife conservation charity that allowed members admission to its sites to view its conservation work wouldn’t be regarded as providing services or facilities for personal use.
The payment of a subscription to a charity to simply receive a copy of its magazine isn’t a payment to become a member of the charity. Such a payment is the purchase of a magazine subscription and can’t be Gift Aided.
3.37.5 Similarly, the opportunity to take part in activities by which the charity carried out its charitable objectives are acceptable as long as the activities don’t amount to making personal use of its facilities. So, a youth organisation that provided various activities in furtherance of its broader educational objectives wouldn’t be regarded as providing services or facilities for personal use.
3.37.6 Membership subscriptions that secure the right to personal use of facilities or services aren’t gifts. So, for example, subscriptions that are made in order to obtain for an individual or individuals’ tuition, coaching or other educational instruction are not gifts. Similarly, subscriptions to a sports charity or a charitable film society are not acceptable if they secured for members the free or discounted use of, say, a golf course or a swimming pool or the viewing of films that aren’t available on similar terms to non-members.
3.37.7 Where a charity separates that part of the membership subscription that simply gives the basic rights of membership and does no more than cover the basic administration costs of the charity from any part that relates to the provision of services or facilities the membership element can be a gift. So, for example, a sports charity that charges a basic membership subscription, with additional, variable, training or playing charges depending on the member’s standard, could regard the basic membership as a gift. The additional training or playing charges couldn’t be treated as gifts. A charity that charges a standard membership fee that covers membership and participation couldn’t treat any part of the subscription as a gift if participation in the activities involved personal use of services or facilities.
3.37.8 Many organisations offer family membership arrangements that give all the rights of individual membership, but at a reduced cost. Where a charity offers family membership the subscription is a gift to the charity provided the subscription:
- secures membership for the donor
- satisfies the conditions in ‘Membership subscriptions’
3.37.9 The fact that the subscription gives members of the donor’s family rights of membership too doesn’t change this as the payment is, primarily, a gift from the donor to the charity. The donor must, however, be the person who has given a Gift Aid declaration to the charity.
Paying other people’s subscriptions
3.37.10 The payment to a charity to secure individual membership rights for a person other than the donor aren’t gifts to the charity. This includes an individual membership purchased for a family member (spouse, parent etc) that’s not secured as part of a family membership scheme. This is because although the payment is made to the charity the gift is to the person whose membership subscription is being paid.
However, this doesn’t extend to payments made in respect of a donor’s minor children (children under 18 years of age). So, a payment that satisfies the conditions to be treated as a gift if made in respect of the donor personally will be accepted as a gift if it’s made for their minor child.
Professional subscriptions paid to charities
3.37.11 Certain organisation have applied for and been entered on HMRC list of professional qualifying bodies, List 3 and, as such, its members can claim tax relief on their subscriptions as an expenses deduction from their employment earnings under Sections 344 Income Tax (Earnings and Pensions) Act 2003 (previously Section 201 Income and Corporation taxes Act 1988).
Period prior to 6 April 2007
The payment of a professional membership subscription to a charitable organisation shown on the list can be Gift Aided provided:
- the charity receives the member’s confirmation that they’ve not claimed (and wouldn’t claim) the subscription as an expense deduction for tax purposes - that is, the choice to claim the subscription as an expense deduction or a ‘donation’ to charity is a matter for the member to decide
- the conditions above are satisfied so that the subscription can be regarded as a gift
- the conditions of the Gift Aid Scheme are otherwise met
Period from 6 April 2007
In order to be a qualifying donation for the purposes of Gift Aid, a gift to a charity must satisfy the conditions set out in section 416 Income Tax Act 2007. Section 416(5) ITA 2007 provides that the payment in question must not be deductible in calculating an individual’s income from any source. This condition was a change to the Gift Aid legislation and it was detailed in the Change Notes to ITA 2007 (No 76).
The general rule for the deduction of employees’ expenses is at section 336 Income Tax (Earnings and Pensions) Act 2003. This states that a deduction from earnings ‘is allowed’ for expenses incurred wholly exclusively and necessarily in the performance of the duties of the employment. An expense that ‘is allowed’ is ‘deductible’.
For members employed in their relating profession, their professional subscriptions are ‘deductible’ from their income and whether or not they choose to claim the deduction is immaterial. Employed members (including those self employed) no longer have the choice to regard their membership subscriptions as donations and can’t, therefore, Gift Aid their subscriptions.
However, retired or student members with no relevant income from which to make a deduction can make use of the Gift Aid provisions provided:
- the charity receives the member’s confirmation that they’ve no relevant earnings against which the subscription is deductible as an expense deduction for tax purposes
- the conditions above are satisfied so that the subscription could be regarded as a gift
- the conditions of the Gift Aid Scheme are otherwise met
Charity voucher or cheque accounts used to pay membership subscriptions
3.37.12 Some charities offer voucher or cheque ‘accounts’ to which are credited Gift Aid donations, Payroll Giving donations or the value of other tax relieved gifts (such as the proceeds from gift of shares etc). The charity (voucher charity) will claim any Gift Aid repayment from HMRC and credit that to the ‘account’. The voucher charity then allows the donor to direct the amount and value of those donations to other charities.
Once a donor has given a Gift Aid (or other tax relieved) donation to the voucher charity, the whole of the gross donation belongs to the voucher charity (including any Gift Aid tax repayment). All charities must apply their income for charitable purposes only and this includes amounts credited to donors’ ‘accounts’ by voucher charities. The payment of a membership subscription by a voucher charity on behalf of a donor is not an application of income for charitable purposes by the charity, even if it’s membership of another charity. This is because the payment secures membership rights for the donor rather than delivering the voucher charity’s charitable objects. Consequently charity cheques or vouchers can’t be used to pay for membership subscriptions on behalf of the donor.
An additional issue arises where the payment of a donation using charity cheques or vouchers provides the donor with a right of admission to view the recipient charity’s property. The right of admission to view a charity’s property may be disregarded for Gift Aid purposes if, among other conditions, it’s the charity receiving the Gift Aid donation that grants the right of admission to its property. However this disregard doesn’t apply where the right is granted by a charity receiving payment by a voucher or cheque from another charity: that’s because the charity granting the right of admission hasn’t received a Gift Aid donation. Consequently in such circumstances the benefit can’t be ignored. If the value of that right exceeds the Gift Aid benefit limits Gift Aid can’t apply. Therefore it’s not appropriate to make such donations out of Gift Aided funds from a voucher charity account.
Chapter 3.38 Adventure fundraising events - sponsorship payments and Gift Aid
3.38.1 Some charities organise adventure challenge events, frequently overseas treks and bike rides, (events) to raise funds. For example, cycling in Cuba, rafting the Grand Canyon or trekking in China. The same principles apply to similar events in the UK (for example, parachute jumps, helicopter flights).
3.38.2 Participants are asked to pay a non-refundable deposit/registration fee (say, £200) and to raise sponsorship of a minimum set amount (say, £2,500) in return for going on the event.
3.38.3 The charity pays a third party to arrange the event (say, £1,200). The payment covers all a participant’s costs, (travel, insurance, provision of specialist equipment (bike, raft etc), food, accommodation etc).
3.38.4 Sponsorship payments are eligible for the Gift Aid Scheme provided all the normal requirements of the scheme are satisfied, including the benefit rules. The relationship of the sponsor to the participant - whether they are ‘connected’ persons - generally decides whether sponsorship may be Gift Aided. A ‘connected person’ is a person that is connected with a donor if that person is:
- the wife, husband or civil partner
- a relative (brother, sister, ancestor (for example, mother) or lineal descendant (for example, grandson)
- the wife, husband or civil partner of a relative
- a company under the control of the donor, or under control of connected persons
3.38.5 In most instances a participant will receives a benefit equal to the cost of the event, less any payment they personally make towards the cost of the event (including any deposit/registration fee payable). Where the value of the benefit exceeds the permitted levels Gift Aid won’t be available.
Sponsors who are connected persons
3.38.6 Sponsorship payments made by persons connected to the participant also, usually, fail the donor benefit rules (where the participant receives a benefit) and so won’t qualify for Gift Aid but see paragraph 3.38.9.
Sponsors who aren’t connected persons
3.38.7 Sponsorship payments made by persons not connected to the participant can be made under Gift Aid. So, if all the sponsorship raised by a participant is donated by persons not connected to the participant then all of those individual payments can be Gift Aided.
3.38.8 Any deposit/registration fee paid by a participant won’t be a donation to the charity and so can’t be a Gift Aid payment. Any donation made by the participant may also fail the benefit rules and can’t be Gift Aided.
The participant pays the full cost of the event.
3.38.9 If a participant personally pays the charity the full advertised cost of the event from his own resources, the value of the benefit of participating is reduced to nil. The benefit rules still apply but in this instance the value of the benefit will be nil. So, while the sum paid by the participant to meet the full cost of taking part in the event can’t be Gift Aided, the donations made by others (both connected and not connected persons) can be Gift Aided.
3.38.10 In the example above the benefit, which would arise is the full cost of the trip as advertised by the charity - £1,200 (that is, £200 deposit/registration fee plus £1,000 for the balance of the trip). If the participant pays the charity £1,200 they will reduce that benefit to nil. None of this payment will be a gift to the charity so none of the £1,200 can be a Gift Aid payment.
3.38.11 If the participant reduces the benefit to nil by paying the full cost of the trip then all sponsorship paid, whether by connected persons or otherwise, can be Gift Aided.
3.38.12 Charities should take all reasonable steps to ensure that Gift Aid payments aren’t received from persons connected to a participant. HMRC recognises that, in practice, a charity can’t be expected to check whether a participant and their sponsors are connected persons. However, a participating charity must include in the event literature and on the sponsorship form:
- an explanation that sponsors connected to a participant can’t make their donations by Gift Aid unless exceptionally the participant pays the full advertised cost of the event
- the definition of a ‘connected person’ (see paragraph 3.36)
Chapter 3.39 Gift Aid on donations that attract a right of free admission to charity property
Introduction to ‘Gift Aid Admissions’ rules
3.39.1 The following guidance is intended to cover most common situations encountered by charities offering donors the right of admission to view charity property. Charities are advised to contact HMRC Charities for advice before implementing any arrangements which are not covered by this guidance.
3.39.2 Donations to charity may qualify for Gift Aid, providing the donor receives no more than minimal benefits in consequence of a donation. However, from 6 April 2006 a relaxation to the benefit rules applies for charities which allow visitors access to view charity property.
3.39.3 If, in consequence of a donation, a charity allows a donor the benefit of a right of admission to view charity property then, providing certain conditions are met, the value of that benefit may be disregarded and the donation may qualify for Gift Aid.
3.39.4 For the benefit of any right of admission received in consequence of a donation to be disregarded (so that the donation can be considered for Gift Aid), the following conditions must be satisfied:
- a donation is made and in return the charity grants a right of admission to the donor, or the donor and his family, for a period of at least a year, at the same times at which the general public can obtain admission
- a donation is made of at least 10% more than the cost of admission to the general public and in return the charity grants an equivalent right of admission to the donor, or the donor and his family
and all the other conditions of the Gift Aid Scheme are met, including the Gift Aid benefit rules.
3.39.5 The opportunity to make a gift and to receive a right of admission in consequence must always be available to the public. This means that the right of admission to view charity property must not be made conditional upon the donor making a Gift Aid declaration.
The annual right of admission option
3.39.6 This option applies where, in return for a donation, a charity grants a right of admission to view charity property for a period of at least 1 year, at all times that members of the public can gain admission. Charities can opt to:
(a) Accept a donation and allow free admission for all visits during the period covered (but the charity can specify up to 5 days when the right of free admission doesn’t apply). However a visitor who chooses to make a donation but doesn’t complete a Gift Aid declaration must also be able to gain free admission on the same terms. So in practice the ‘12 months entry’ price must be available to all whether they chose to make a Gift Aid declaration or not.
(b) Accept a donation and grant a right of admission on payment of a reduced fee, which must apply for the first and all subsequent visits during the period covered. In this scenario only the initial donation will qualify for Gift Aid. The first and subsequent admission fees aren’t donations but are payments of a charge for admission to view the property. A visitor who chooses to make a donation but doesn’t complete a Gift Aid declaration must also be able to gain the same reduced rate admission on the same terms for their first and all subsequent visits.
3.39.7 A charity granting annual admission in return for a donation must apply 1 or the other of these scenarios rather than a mixture of the 2, that is, the same free or reduced rate admission must be applied for the first and all subsequent visits.
A 12 month admission scheme where a donation, equal to the cost of a day admission, secures 1 free visit and repeat visits at reduced rates doesn’t succeed because it mixes free and reduced price admission.
A charity charges £30 to become a member which entitles the member to gain access to view the charity’s house and grounds for a year on the basis that they only pay 25% of the entrance fee which is currently £12 (there are no other benefits). The member pays £30 (which is treated as a donation because the conditions in (b) of paragraph 3.48.6 have been met) and £3 to enter and he makes 5 more visits paying a further £15. He can Gift Aid the £30 membership subscription but the further £18 can’t be Gift Aided as they are not a donation but payments to enter the charity’s property.
A charity charges £30 to become a member which entitles the member to free access for the first visit to view the charity’s house and grounds and entry thereafter for a year on the basis that they only pay 25% of the entrance fee which is currently £12 (there are no other benefits). He makes 5 more visits during the year, paying a further £15. The relaxation of the benefit rule does not apply and, while the membership subscription is regarded as a donation (see paragraph 3.37), the benefits as a consequence of the donation amounts to £57 (£12 plus 5 discounted entries saving £9 each time) and so the donations fails the Gift Aid benefit limit of £7.50 (£30 @ 25%). None of the £45 paid (£30 + £15) can be Gift Aided because the charity has given free admission on the first visit and charged reduced rate for admission on subsequent visits.
3.39.8 Charities are free to decide what minimum level of donation they’ll accept before granting a right of admission for a year or more (so for example can choose to allow annual admission for a donation equal to the daily admission charge), but must always give an equivalent right of admission to all donors including those who don’t make a Gift Aid declaration that is, the right of admission must not be made conditional upon the donor making a Gift Aid declaration. It must also be made clear to the donor before they’re asked to complete a Gift Aid declaration that they can purchase the yearly right of admission without making the Gift Aid declaration for the same price as if they do make the declaration. For further guidance see paragraph 3.39.5.
3.39.9 Charities don’t have to be open all year or every day to grant a right of admission for a period of a year or more. Gift Aid can apply as long as the right of admission is available to donors at all times when the property is open for viewing by members of the public. Charities may, however, specify up to 5 days per year when the donors’ free or reduced rate right of admission will not apply. For further guidance see paragraph 3.39.25.
The ‘admission charge plus 10%’ option
3.39.10 This option applies where a member of the public could purchase a right of admission, but instead chooses to make a gift that is at least 10% more than the admission charge, and in return for that donation the charity grants the equivalent admission to view charity property. The whole amount received from a donor is treated as a donation for Gift Aid purposes, not just the additional 10%.
3.39.11 Any period of admission from 1 day to less than 12 months can be included within this option as long as members of the public could purchase an equivalent right of admission.
A charity may sell a summer season ticket for a period of 3 months for £30; if the same right of admission is granted to an individual donating an additional 10% (that is, paying £33 in total), the whole £33 can qualify for Gift Aid.
3.39.12 For payments to qualify for Gift Aid, each visitor must be made aware at the time they’re asked for payment that they can choose to pay the admission charge or make a voluntary donation of 10% more than the admission charge and receive the same right of admission. If the visitor is denied the right to choose to pay the standard admission charge, then payment of the extra 10% is not a freely given gift and can’t be a qualifying donation. Charities must clearly advertise their normal admission charges and make it absolutely clear to all visitors that they will be admitted upon payment of the lower admission charge if they choose not to make an additional 10% voluntary donation.
Terms and conditions
3.39.13 It’s most important that the terms and conditions attached to an admission fee don’t include a right to a full or partial refund of the admission fee. This may be in the event of bad weather, cancellation of an exhibition or mechanical failure of an exhibit. It’s an important condition of the Gift Aid Scheme that any donation can’t be repaid under any circumstances.
Qualifying charities and rights of admission
3.39.14 The right of admission must be granted by the charity for the purpose of viewing property preserved, maintained, kept or created by a charity in pursuit of its charitable purposes.
Property isn’t restricted to land and/or buildings. It also includes:
- works of art (but not performances)
- scientific property
This list is not exhaustive.
Property preserved, maintained, kept or created
3.39.15 The property being viewed doesn’t necessarily have to be preserved, maintained etc by the particular charity granting a right of admission but must be preserved, kept etc by a charity, with similar objects to the charity making the admission charge.
A national Child Welfare Charity (CWC) has a permanent exhibition at its headquarters, illustrating the value of toys and games as elements of a healthy childhood.
The toys on display belong to a Museum of Childhood (MOC), which is a charity with similar objects to CWC.
The charity (CWC) is therefore admitting visitors to view property kept, maintained etc by a charity - MOC.
Joint admission arrangements
3.39.16 Gift Aid can apply to donations which give the donor a right of admission to the property of more than 1 charity. The visitor who chooses to make a donation must, however, know which charity or charities are sharing his donation, and in what proportions. There are 2 general scenarios possible:
(a) Where 1 charity manages the whole venue, and has a separate contractual arrangement with the other charities for providing that management service, any visitor choosing to make a donation will make it to the managing charity and the Gift Aid declaration need only specify that charity.
(b) Where each charity administers its own site but there are joint admission arrangements allowing for a split of the admission charge or donation between the charities then the visitor must be made aware, if he chooses to make a donation, of the amount of the donation ‘per charity’. This must be clearly specified at the time of the donation. The Gift Aid declaration must also reflect this correctly.
A joint admission ticket allows access to 3 different charity properties, specifying that the admission charge of £15.00 is allocated in equal proportions that is, £5.00 to each of the 3 charities offering admission to their property.
If a donor makes an additional voluntary contribution of £1.50 (10% of £15.00) each charity could claim Gift Aid on £5.50; HMRC will accept a joint declaration which specifies the names of each charity and shows that the donor is aware of the allocation when he makes his donation.
2 charities together offer a qualifying right of annual admission to their properties in return for a donation of £100 to be allocated between them in the proportion 70/30.
The charities could claim Gift Aid on £70 and £30 respectively; The charities can use a joint declaration which specifies the names of each charity and shows that the donor is aware of the allocation when he makes his donation.
3.39.17 In these circumstances care must be taken regarding the format of the Gift Aid declaration, and charities considering this type of joint admission arrangement can contact HMRC Charities for assistance.
3.39.18 Charities must also be very careful when they consider offering multiple admissions to a mixture of charity and non-charity properties. The right of entry to a non-charity property may have to be considered as a benefit received in consequence of the donation (unless it is clearly priced and paid for separately).
Charities in this position should contact HMRC Charities for guidance about specific scenarios or proposals.
Reciprocal arrangements with other charities
3.39.19 Gift Aid can apply to qualifying donations which grant a right of admission to the property of more than 1 charity as long as there’s an equivalent right of admission granted to donors who opt not to make a Gift Aid declaration.
2 zoos in different parts of the country may have a reciprocal arrangement to allow donors annual admission to the other’s property.
As long as each is a charity the benefit of admission to each site can be disregarded under this arrangement.
There’s no additional benefit as donors receive a disregarded right of admission to each zoo.
Charities displaying loaned items or non-charity property
3.39.20 Charities may also display property that doesn’t belong to them, borrowing it from other charities or from private owners, public bodies etc.
3.39.21 A distinction has to be drawn between admission to view a charity’s property, which may have been merely supplemented by items borrowed from others, including non-charities, and the display of other property - simply being displayed on a charity’s premises.
If the borrowed property and/or its preservation etc is within the defined objects of the charity it’s being ‘kept’ by the charity and Gift Aid can apply, subject to all other conditions being met. If the borrowed property and its preservation would be outside the charity’s objects and it’s displayed by its owners rather than by the charity that is, the charity doesn’t borrow the property for incorporation into its own displays, that property is not ‘kept’ by a charity.
If the property - not regarded as ‘kept’ by the charity - constitutes a significant part of the attraction at a particular property, Gift Aid would probably not apply to the payment for admission as the value of viewing non-charity property would have to be accounted for as a non-charitable Gift Aid benefit.
3.39.22 Performances are specifically excluded from the category of ‘works of art’ but Gift Aid may still be available on donations made for admission to view property where performances also take place.
- donations to admit visitors to a performance of a play at an historic theatre won’t qualify
- but the same theatre may be open at times when performances aren’t taking place, to allow visitors to view its architectural features
3.39.23 If a performance is merely incidental to the viewing of a charity’s property or it can be regarded as integral to the viewing of that property it’s not disqualified as a ‘performance’.
- historic re-enactments illustrative of the property’s former use
- demonstrations of technical processes or crafts associated with the property
- interactive experiments in a science museum
3.39.24 Rights of admission that include interactive experiments with an educational purpose and displays of military memorabilia will also qualify as being integral to the viewing of charity property.
Restricting rights of admission for special events at charity properties
3.39.25 A charity that grants donors an annual right of free or reduced rate admission in return for qualifying donations may restrict the right of free or reduced rate admission to donors for a maximum of 5 days in any 12 month period when the property is otherwise open to the public. If the right of admission is restricted for more than 5 days the donation will not qualify for Gift Aid.
3.39.26 This allows charities to hold events for which the usual public admission arrangements don’t apply; generally this will be events for which there’s a special public admission charge such as concerts, performances of plays, firework displays, etc.
3.39.27 If a charity excludes donors from free or reduced rate admission to view the charity property when a special event is taking place, it may nonetheless admit donors for that day only, on payment of the public admission charge. The payment of the admission charge won’t qualify for Gift Aid as it will be a payment to attend the event rather than to view the charity property.
A charity allows donors the right of free annual admission to view its property but donors are excluded from free entry on 5 days per year because events with a separate admission charge are taking place, such as a Christmas fayre, Easter egg hunt, Fashion show, etc. On those days the charity charges donors the full public admission price, which doesn’t qualify for Gift Aid. If there were 6 or more such events in the year none of the donations would qualify for Gift Aid.
If donors with the annual right of free admission were charged a reduced price for admission to a special event, the value of the discount would be taken into account as an additional benefit received in consequence of their donation; the payment of the reduced admission fee wouldn’t qualify for Gift Aid (see paragraph 3.39.30)
3.39.28 Special events that are held outside the times when the charity property is normally open to members of the public need not be taken into account when applying this restriction.
A charity allows donors the right of free annual admission to view its property on weekdays only. It can exclude donors from free admission to special events, such as concerts, held on any Saturday or Sunday, but exclusion of donors from free admission on a weekday because a special event is taking place must be restricted to a maximum of 5 days in any 12 month period.
Provision of other benefits
3.39.29 Some charities give donors other benefits apart from the right of admission. Only the right of admission to view a charity property can be disregarded and any other benefits provided to a donor as a consequence of a donation must be valued separately and taken into account when considering whether the donation qualifies for Gift Aid. The value to be taken into account is the value to the donor not the cost to the charity. A charity may decide to provide visitors with benefits as a thank you for making an optional 10% donation; this is acceptable providing the benefits don’t exceed the normal benefit rules.
- the admission charge to view a charity’s property is £20.00
- visitors making a donation (£22) of an extra 10% are granted free admission
- the full amount donated, £22.00 qualifies for Gift Aid and the charity can therefore give other benefits with a value of
- to £5.50 (being 25% of £22.00)
- if the charity gives a soft toy worth £6 (the benefit to the donor is the retail value not the cost of the item to the (charity) no Gift Aid can be claimed on the donation as the benefit limit is exceeded
- if the charity offers a voucher for £5.00 to spend in the restaurant, the donation will qualify for Gift Aid
Particular benefits - admission to special events
3.39.30 If admission to a property also includes free or reduced rate entry into events that are held on the charity’s premises, and for which a separate admission charge applies, then the value of free or reduced price entry into those special events must be taken into account as an additional benefit in consequence of a donation for Gift Aid purposes. Depending on the value of the event it may mean that the donation does not qualify for Gift Aid.
A charity allows free annual admission to its estate in return for a donation. The charity holds an annual Easter egg hunt on the estate, for which there is a special public admission charge of £10. The charity allows free entry to the Easter egg hunt to donors. The additional benefit of £10 is not automatically disregarded for Gift Aid purposes but must be taken into account as an additional benefit in consequence of the donation.
Particular benefits - use of charity facilities
3.39.31 If the right of admission includes the use of charity facilities then the value of the use of those facilities must be taken into account as an additional benefit in consequence of a donation for Gift Aid purposes. Depending on the value of the use of those facilities it may mean that the donation doesn’t qualify for Gift Aid.
A charity charges visitors to view a historic building; visitors can pay an optional additional fee to use a swimming pool housed in the building. The charity allows free annual admission to the building and swimming pool in return for a donation. The right of admission to the building is disregarded for Gift Aid purposes, but the value of the right to use the swimming pool facilities must be taken into account as an additional benefit in consequence of the donation.
If you’re in doubt about how to treat a particular item, site or event at a property covered by this legislation please contact HMRC Charities with full details.
Gift Aid declarations
3.39.32 If a visitor chooses to make a donation to a charity he or she can also choose to make a Gift Aid declaration. The donation won’t qualify for Gift Aid treatment in the charity’s hands unless an appropriate declaration is given.
3.39.33 An appropriate declaration may be made in writing or orally. It must contain the donor’s initial and surname and his home postal address (house number and postcode as a minimum). The donor must also confirm that he or she has paid sufficient tax to cover the amount reclaimable by the charity and that he or she understands that he or she is responsible for paying any difference.
3.39.34 Where a donor makes an oral declaration, the charity must keep a record of the declaration and give the donor written confirmation of the declaration, for example on the till receipt. Further guidance on the requirements for Gift Aid and appropriate declarations is available at paragraph 3.10.
Donors who don’t make a Gift Aid declaration
3.39.35 Some visitors will choose to make a donation to the charity but will be unable to make a Gift Aid declaration as they will not be UK taxpayers; others may want to make a donation but prefer not to claim Gift Aid on their donation. These donors must receive exactly the same right of admission as donors who do make a Gift Aid declaration. This rule applies whether the charity operates the ‘annual right of admission’ option or the ‘admission charge plus 10%’ option.
3.39.36 Charities may decide to give annual right of admission to visitors who make a donation equal to, or less than, the standard daily admission charge. This is acceptable, but charities must be prepared to accept a donation and give the annual right of admission to any donor who chooses this option, whether or not he or she makes a Gift Aid declaration.
A charity owns 3 properties and charges £10 for daily admission to any single property. The charity chooses to offer donors the annual right of free admission to all 3 properties in return for a minimum donation of just £25. The benefit of admission to all 3 qualifying properties in return for a donation can be disregarded for the purposes of Gift Aid, providing the ‘discount’ is offered to all donors, and not only to those making a Gift Aid declaration.
Classes of admission
3.39.37 A charity may make admission available at concessionary rates for different classes of visitor for example, pensioners, students, disabled visitors, the unwaged etc. When granting the right of entry in return for a donation of 10% more than the admission charge, the 10% extra is applied to the specific charge for each particular class of visitor.
The standard adult admission charge to a charity property is £15, with a reduced admission charge of £10 available to pensioners.
Mr Green is a pensioner and makes an additional voluntary donation of £1.00 (10% of £10.00) - he can Gift Aid his whole donation of £11.00.
His daughter Miss Green isn’t entitled to any concessions, so must make a voluntary donation of £1.50 (10% of £15.00) in order to Gift Aid her total donation of £16.50.
If Miss Green makes a donation to secure admission for both herself and her father, the total amount she must pay to qualify for Gift Aid is £27.50
3.39.38 The right of admission of the donor and 1 or more members of his/her family can be disregarded for Gift Aid purposes, whether or not that right of admission is exercised by all of the family members at the same time.
Mr Smith makes a donation in return for which a charity grants the right of annual admission to Mr Smith, his wife and his 2 children. His donation will qualify for Gift Aid even if his wife and children visit the property without him, or if he visits the property alone.
3.39.39 What constitutes a ‘family’ for the purposes of a ‘family ticket’ depends on the circumstances. Typically a family ticket will be available to a couple and their minor children or to everyone living in the same home - which might include adult children and grandparents. Either is acceptable for Gift Aid purposes. It’s each charity’s responsibility to explain to visitors that in order for donations to qualify for Gift Aid, the right of admission must apply to family members only. HMRC recommends that charities draw attention to this requirement in literature and signage. There’s no expectation that the charity will make detailed identity or relationship checks on individuals. However, it’s in the charity’s interests to monitor donations for ‘family admissions’, as HMRC may query claims for Gift Aid on unusual groups may be queried if audited. If a charity wanted to introduce a different definition of ‘family’ to either of the 2 above and seek to claim Gift Aid on that ticket they should contact HMRC Charities explaining the definition of ‘a family’ they intend to use before submitting any Gift Aid claims for that ticket.
If a visitor wishes to make a Gift Aid donation to admit a group of 8 adults (paying 8 times the single admission + 10% donation), he or she should be told that only donations giving the right of admission to the donor’s own family members will qualify for Gift Aid. The visitor should be asked to confirm that 7 guests are indeed members of their own family. If audited, the charity is likely to be asked to demonstrate that its procedures included this confirmation. Whilst it’s not a statutory obligation, charities might decide to include this confirmation on Gift Aid declarations/till receipts.
3.39.40 Many charities offer ‘family tickets’ at special prices. Each charity can decide its own policy for what they’re prepared to accept in terms of family size and familial relationships when granting such a right of admission, but this is not directly relevant to the Gift Aid provisions.
A charity may offer a ‘family ticket’ allowing annual admission for 2 adults and up to 3 children at a reduced rate.
If Mr and Mrs Brown have 4 children, Mrs Brown may claim Gift Aid on her donation for a ‘family ticket’ obtaining a right of annual admission in accordance with the charity’s rules for a family reduction.
She can also make a Gift Aid donation for the additional child admission she obtains to take the whole family to view the property as she is merely making a second donation for 1 or more members of her family.
3.39.41 A donor can’t make a qualifying donation in respect of payment for a group of people who are not members of his/her family, for example a group arriving as a coach party.
3.39.42 An individual can, however, collect donations from members of a group and pass them on to the charity for administrative convenience. Each member of the group who makes a donation must individually fulfil the Gift Aid conditions (so the donation could be for his personal admission, or for himself and members of his family), and each donor must complete a personal Gift Aid declaration. Any cheques must be made payable to the charity rather than the group organiser.
3.39.43 The charity must take care only to claim Gift Aid in respect of those members of the group who make qualifying Gift Aid donations.
3.39.44 There’s no equivalent relaxation of VAT rules for payments to gain admission to view charity property.
3.39.45 The addition of an amount over and above the standard admission charge, including the voluntary 10% donation on top of an admission charge doesn’t therefore make the entire payment a donation for VAT purposes.
3.39.46 For VAT a donation must be freely given with the donor receiving nothing in return for the donation (except a token item, which has no intrinsic value, such as a lapel sticker or poppy)
3.39.47 If a charity is VAT registered, VAT at the standard rate will still have to be accounted for on the admission charge - unless the cultural exemption applies, in which case the admission charge will be exempt from VAT.
More information about the Cultural Exemption can be found in VAT Notice 701/47 Culture.
3.39.48 Where a charity provides benefits as an incentive, to encourage donations in addition to the admission charge, the VAT position changes, whether or not such donations exceed 10% of the admission charge.
3.39.49 VAT becomes due on the amount paid in addition to the admission charge at the rate appropriate to the benefit provided ie at the zero, standard or reduced rate.
VAT - admission charge standard rated
3.39.50 Where a charity receives a gift aid donation which is in part subject to VAT at the standard rate, the VAT position is as follows:
- that part of the payment representing the normal admission charge is standard rated
- the additional amount is a donation and outside the scope of VAT, provided that it’s truly voluntary and gives no additional benefits
3.39.51 In these circumstances the receipt of such donations doesn’t require a business/non-business apportionment.
VAT and vouchers
3.39.52 A charity may decide to offer vouchers as an incentive to customers who make a donation in addition to an admission charge; the vouchers are often redeemable at an outlet within the charity property. There are a number of different ways in which voucher schemes work and special VAT rules apply. 1 of the more common types of voucher is a ‘face value’ voucher.
Face value vouchers display a monetary value and are usually sold at or below that monetary value and can be used to obtain goods and services. The provision of a voucher in return for a donation is regarded as supply in return for payment. There’s no VAT on a face value voucher when they’re sold (unless they’re sold for an amount greater than the face value in which case VAT’s due on the difference).
However, when redeemed for goods or services these vouchers are treated as consideration (payment) for those goods or services at their full face value.
Further information can be found in VAT Notice 700/7 Business Promotion Schemes.
VAT effect on partial exemption calculations
3.39.53 Where a charity is partially exempt, only the normal admission charge should be included in the partial exemption calculation. Any additional donation should only be included if the charity provides a gift or benefit in return for the extra amount.
3.39.54 Freely given donations, where the donor receives nothing in return (other than a token item such as a lapel badge), are excluded from the partial exemption calculation.
VAT business/non-business calculation
3.39.55 The receipt of donations doesn’t in itself create a requirement to carry out a business/non-business calculation. Where a business/non-business calculation is required, dependent on the apportionment method used, the donative elements may have to be included in the calculation. Non-business activity is generally the supply of goods and services for no charge.
For basic information on how VAT affects charities see VAT Notice 701/1 Charities.
3.39.56 A VAT-registered charity makes an admission charge of £10 to view charity property. They seek a donation of more than the £10 admission charge to help them pursue their charitable objectives.
The charity provides no goods or benefits in return for the additional donation:
VAT is due at 20% on the £10 admission charge unless the VAT Cultural Exemption applies (supply is exempt)
As no goods or benefits are given any amounts received in excess of the £10 can be treated as donations - outside the scope of VAT.
The charity gives a lapel sticker to visitors who make a donation:
VAT is due at 20% on the £10 admission charge.
Because a lapel badge is merely a token, any additional amounts can be regarded as a donation and therefore outside the scope of VAT.
The charity gives a book about the history of the charity property to visitors who make a donation:
VAT is due at 20% on the £10 admission charge unless the VAT cultural exemption applies (supply is exempt).
As books are zero rated any amounts paid in addition to the admission charge, represent a zero-rated consideration for the book.
If the customer doesn’t receive the book, either because they’ve paid an additional amount less than 10% of the admission charge or they choose not to take the book, the additional amount is a donation outside the scope of VAT.
The charity gives the customer a set of coasters picturing the charity property:
VAT is due at 20% on the £10 admission charge, unless the VAT cultural exemption applies (supply is exempt).
As the coasters are a standard-rated supply any amount paid in addition to the admission charge is a standard-rated consideration for the coasters and VAT will be due at 20% on the additional amount paid.
If the customer doesn’t receive or accept the coasters the additional amount can be considered a donation outside the scope of VAT.
The charity gives the customer a token with a face value of £1 to be redeemed at one of the charity’s outlets:
VAT is due at 20% on the £10 admission charge, unless the VAT cultural exemption applies (supply is exempt).
If the customer pays an additional £1 no VAT is due on the face value of the token at this point.
VAT is accounted for when the voucher is redeemed, at the rate appropriate to the goods or services purchased. For example, if it’s used to buy a book the zero rate will apply, to buy a snack at a café the standard rate of 20% will apply.
If the extra amount paid by the customer is greater than the face value of the voucher (say £1.50) VAT would be due at the standard rate on £0.50 on admission and VAT on the remaining £1 is accounted for when the voucher is redeemed.
If the customer doesn’t receive a voucher, either because they’ve paid an additional amount less than 10% of the admission charge or they choose not to take the voucher, the additional amount is a donation outside the scope of VAT.
Chapter 3.40 Charity auctions
3.40.1 A payment for an item at a charity auction isn’t a gift to charity, it’s a purchase.
3.40.2 However, when a person purchases a lot at a charity auction they may intentionally pay more than it is worth in order to support the charity. So, on that basis and depending upon the circumstances, part or all of a successful auction bid may qualify as a Gift Aid donation to the charity.
3.40.3 The payment will only qualify as a Gift Aid payment if the normal requirements of the Gift Aid Scheme are met, and that includes satisfying the Gift Aid benefit rules.
Gift Aid benefit (valuation of an auction item)
3.40.4 For an item that is commercially available, the benefit for Gift Aid purposes is the ‘shop sale’ price of the item. An item must have a clear and recognisable value (market value) and be available commercially for purchase separately by an individual otherwise than at the auction.
3.40.5 For a commercially available item that has had its value enhanced, for example because it has been owned by a celebrity, the market value (and hence the benefit for Gift Aid purposes) won’t be the original price of the item but the amount it fetches in the auction.
3.40.6 For an item not commercially available, its value is the auction price paid by the purchaser. So the benefit for Gift Aid purposes is the ‘auction’ price paid (effectively a benefit of 100% of the successful auction bid).
Buying the Gift Aid benefit (split payment)
3.40.7 Where the value of the benefits exceeds the limits in the donor benefit rules (so that the whole of the donation fails as a Gift Aid donation) the donor may, as a concession, be able to treat part of his/her payment as buying the benefits (the value in monetary terms of the benefits) and Gift Aid the excess donation.
The Gift Aid benefits can only be purchased if:
- the benefits can be purchased separately
- the donor is aware of the monetary value of the benefit at the time they make their donation
3.40.8 For auction items, this treatment only applies where:
- the auction item can be purchased separately elsewhere
- the donor is aware of the value of the benefit (the retail cost of the item) at the time they make their successful auction bid (donation)
That is, the donor must know the monetary value of the item at the time they make their bid in order to ‘buy the benefit’ and so know that the excess is a donation.
A charity auctions a football that is on sale in a well known store for £10.
The football is commercially available for £10, so the Gift Aid benefit is £10. The benefit is £10 whether:
- the charity buys the ball from the store
- the store donates the ball to the charity
- an individual purchases the ball from the store and donates it to the charity
(a) An individual successfully bids £40 for the ball
The benefit is £10 and, as the benefit is 25% of the price paid of £40, the whole of the £40 is eligible as a Gift Aid payment.
(b) An individual successfully bids £30 for the ball but the charity didn’t tell bidders at the start of the auction that it could be bought locally for £10
The benefit is £10 and, as the benefit is 33% of the price paid of £30, the Gift Aid benefit limit is exceeded. So none of the £30 paid is eligible as a Gift Aid payment (the donor can’t buy the benefit).
(c) An individual successfully bids £30 for the ball and the charity told bidders at the start of the auction that it could be bought locally for £10
The benefit is £10 and, as the benefit is 33% of the price paid of £30, the Gift Aid benefit limit is exceeded. However, the donor can buy the benefit and so £20 is eligible as a Gift Aid payment (£30 paid less the bought benefit of £10).
(d) The ball is signed by the local football team and sold for £100 (although the price paid is not relevant to the treatment described below)
The nature of the ball has changed by its being signed by the local football team. The signed ball isn’t the item on sale in the store and its value for Gift Aid benefit purposes is the auction price paid of £100. The benefit is 100% (£100 donation, £100 benefit) and so none of the £100 paid is eligible for the Gift Aid Scheme.
An individual makes a wooden train that is similar to one on sale at a local store and it is bought at auction for £50
The train auctioned isn’t on sale in the store (and isn’t commercially available) and so its value for Gift Aid benefit purposes is the auction price paid of £50. The benefit is 100% (£50 donation, £50 benefit) and so none of the £50 paid is eligible for the Gift Aid Scheme.
Often a charity (mainly churches) will hold an auction of ‘promises’. These are tasks that individuals have promised to carry out for successful bidders. For example:
- wash and polish a car
- cut the grass
- prepare and serve a meal
- make available a holiday cottage for the weekend
- baby sit for an evening
These are all items offered by the general public and aren’t usually (see exception below) on general sale. Similar items/services may be available commercially but not those offered as promises.
The value of a promise for Gift Aid benefit purposes is the auction price paid. The benefit will always be 100% of the donation and so none of the auction price paid to purchase a promise is eligible for the Gift Aid Scheme.
Occasionally a promise offered is commercially available. For example:
- a cottage may be generally available for letting even though owned by a member of the public - if the promise is to make available the cottage for a weekend and the rent charged is usually £100 (and there is evidence available in support) then the Gift Aid benefit is £100 and the rules apply as in example 1
- a local garage may agree to supply a free ‘wash and polish’ for which they charge £10 - the Gift Aid benefit is £10 and the rules apply as in example 1
Charities sometimes receive items owned or used by celebrities for auction. Such items have an enhanced value over and above their purchase price and bids to secure such items can’t be Gift Aided. For example:
A famous pop music star gives a pair of her shoes for a charity auction. These shoes normally retail for £150. Mr Webster purchases the shoes with a bid of £10,000. Although the shoes retail for £150, because a celebrity has owned them, their value has been considerably enhanced and the £10,000 paid represents their market value. The benefit received is £10,000, 100% of the payment. Consequently the £10,000 can’t be paid under Gift Aid.
Chapter 3.41 Voluntary workers’ expenses
3.41.1 Voluntary workers sometimes incur expenditure when assisting charities to carry out their work (for example, travel costs, postal or photocopying charges, etc). Provided the expenses are reasonable and proper, a charity can reimburse a volunteer for the expenses incurred. Often a volunteer will forgo the expenses to which he/she is entitled.
This section explians how the Gift Aid rules apply when volunteers agree to forgo their expenses.
3.41.2 One of the requirements of the Gift Aid Scheme is that the gift by a donor to a charity ‘takes the form of a payment of a sum of money’. So a Gift Aid payment to a charity can’t be made by book entries following a waiver of expenses.
3.41.3 The charity must physically pay the expenses to the volunteer. The volunteer is then free to keep the money or pay part or all of it back to the charity as a Gift Aid payment. If they give all of the expenses paid back to the charity, they’re not returning the expenses but making a payment of an equivalent amount.
3.41.4 The charity will need, as normal, a Gift Aid declaration and an audit trail to bring the payment into the Gift Aid Scheme. The payment will also need to meet the usual requirements of the Gift Aid Scheme (benefit rules etc).
3.41.5 For audit purposes, it is preferable that at least 1 of the payments by the charity or the volunteer is made by cheque.
Taxation implications for the volunteer
3.41.6 Before a payment made to volunteer worker can be charged to tax as employment income there must be:
- either an office or an employment
- earnings from that office or employment
3.41.7 A person who does voluntary unpaid work for a charity won’t normally be engaged under a contract of employment and won’t, normally, be the holder of an office. If there’s no office or employment, it follows that the reimbursement of any expenses incurred by voluntary workers in doing the work of the charity won’t give rise to liability to tax. Similarly, voluntary workers who are otherwise unpaid aren’t liable to tax on the reimbursement of the extra cost they might incur because they undertake such work, for example, the expenses of travel between home and the place where the work is done.
3.41.8 If expenses are paid which do more than reimburse the costs incurred, or are at scale rates which can’t reasonably be regarded as merely a reimbursement of what they spend, the voluntary workers may be receiving remuneration for their services. In that case, the payments will be taxable as employment income if it can be shown that they hold an office or employment. If they don’t hold an office or employment, the payments may be chargeable as a miscellaneous receipt.
3.41.9 If there’s doubt about the tax treatment of expenses payments to volunteers, the HMRC office responsible for considering the matter is:
- for payments made to volunteers who have a contract of employment or are holders of an office, the HMRC office that’s responsible for operating the PAYE Scheme for the charity
- otherwise, the HMRC office responsible for the volunteer’s own tax affairs
Approved mileage allowances
3.41.10 Expenses payments to volunteers within the rates of the approved mileage allowance payments scheme as published by HMRC won’t be taxable.
Chapter 3.42 Claiming Gift Aid when goods are sold by, and the proceeds gifted to, charities
Selling donated goods
3.42.1 Gift Aid applies only to gifts of money by an individual. So, if a person simply donates goods to a charity, Gift Aid doesn’t apply. Charities can’t claim Gift Aid on donations of any physical items, such as clothes or books, only on donations of money.
3.42.2 However, in certain situations, Gift Aid can be claimed by charities or CASCs on the income from the sale of supporters’ goods. The rules that apply are considered in the rest of this Chapter. References to charity or charities throughout should be taken to include CASCs unless otherwise stated.
Carrying out the sale of goods on behalf of the owner
3.42.3 Charity shops may be run directly by the charity or by a subsidiary trading company. A charity or its trading company can offer to act as an agent for private individuals and sell goods on their behalf, so that at the point of sale the funds actually belong to the individual. The charity or its trading company can then ask the owner of the goods to donate the sale proceeds to the charity. If the owner agrees to donate the sales proceeds to the charity, Gift Aid can be claimed by the charity on the net sales proceeds subject to all other Gift Aid conditions being satisfied.
The term ‘net sales proceeds’ is explained in paragraph 3.42.16.
Tax implications for donors
3.42.4 In order for the owner’s donation of the proceeds of the sale of goods to qualify for Gift Aid, the following conditions must apply:
- the private individual retains legal and beneficial ownership of the goods until they’re sold - it must be clear to potential customers that the shop is selling the goods on behalf of the owner and not the charity, and the owner of the goods and the charity must both understand that the charity (or its trading company) is acting as the individual’s agent
- the owner of the goods has the right to keep all of the net proceeds of the sale, but can choose to donate all or part of the proceeds if they wish
Before the net proceeds of sale are donated to the charity, the owner of the goods must make a valid Gift Aid declaration to cover the proceeds they choose to donate to the charity. The declaration will normally be made before the goods are sold, when they’re taken into the shop The donor must make a declaration confirming that in the tax year in which the donation is made they’ll have paid UK Income and / or Capital Gains tax at least equal to the amount of Gift Aid tax relief that the charity, and any other charities they donate to, can claim on their donations.
It’s important that the owner of the goods understands the following:
- the amount which qualifies for Gift Aid is the net sale proceeds - (after any sale commission and VAT are deducted) from the sale of the goods that they agree the charity may keep
- the scheme isn’t available to non-taxpayers- - the shop staff need to be aware that the individual must be a taxpayer and bear in mind that children, the unemployed and many retired people are not likely to be taxpayers
- the goods must belong to the individual personally and not to any other person
- if they sell significant quantities of goods, or are trading separately (as a sole trader) in those or similar goods, they might be deemed to be acting as a business and must therefore consider their own position in terms of potential liability to income tax and VAT on the proceeds, even if they donate them to the charity
- any trader that asks a charity to sell trading goods on their behalf will need to include the full proceeds in their receipts and any commission charged as expenses in their accounts when calculating their taxable profits and when a charity is selling valuable goods on their behalf, any Capital Gains Tax liability will remain the traders own responsibility
3.42.5 Charities, or their trading companies, selling goods on behalf of an individual must explain all the arrangements to the individual. There needs to be a written agreement signed by the donor, which may be a document, or a leaflet or information sheet given to the donor. Staff and volunteers must understand and be able to explain the nature of the arrangements, how Gift Aid applies, and the consequences for the owner of the goods.
Operating the Gift Aid process
3.42.6 There are 3 ways charity shops can operate the Gift Aid process - the Standard Method, Method A and Method B.
The first is the method that charities have been using up to 5 April 2013 and is called the ‘Standard Method’. This is explained in paragraph 3.42.7 below. Please note the guidance on the standard method has changed and charities that continue to use this method should check that their process matches the changed guidance below. In particular they should check that the letters they issue to donors follow the wording of the model letters.
The other 2 methods, ‘Method A’ and ‘Method B’, can be used from 6 April 2013. The methods a charity can use will depend on how it operates its shops.
If shops are operated by the charity directly, then the charity can use the Standard Method or Method A. If the shops are operated by a separate entity such as a trading subsidiary company then the Standard Method, Method A or Method B can be used.
Method B isn’t suitable for CASCs because subsidiary companies of a CASC can’t donate profits to the CASC under corporate Gift Aid.
3.42.7 This method has been available since 2006. This guidance has been updated and charities that choose to use this method should ensure their process matches this guidance and in particular, that the letters they issue to donors include the compulsory wording of the model letters. See paragraph 3.42.9 onwards. Failure to follow this guidance could result in the subsequent Gift Aid claims being invalidated.
3.42.8 The way the Standard method works is that an individual takes goods to a charity shop and agrees that the shop will act as their agent in selling the goods (for which a commission plus related VAT will be deducted from the proceeds). A Gift Aid declaration is completed by the individual at this stage, if the charity doesn’t already hold one. The charity marks the goods in some way so that the sales proceeds can be linked back directly to the donor.
3.42.9 After the goods are sold (but before the charity makes a gift aid claim) the charity shop writes (or sends an e-mail) to the owner of the goods to advise them of the net sale proceeds. The letter / e-mail explains that the charity intends to treat this amount as a gift to the charity unless the owner contacts the charity within 21 days (of the date of the letter / e-mail) to say they want to keep the proceeds. The charity shop must then give the individual at least 21 days to respond to this letter / e-mail before it treats the net sale proceeds as a donation to the charity. The charity must use the compulsory text in the standard method template letter below when writing to the individual. Charities are free to add additional information to the letter or alter the opening and closing sections but the words in italics must be used.
The term ‘net sale proceeds’ means the sales proceeds after commission and any VAT charged on the commission have been deducted. There is more information about this at paragraph 3.42.16.
Emma brings a bag of clothes to a shop run by a charity, and agrees that they can sell all the goods on her behalf.
She completes a Gift Aid declaration naming the charity operating the shop.
The shop assistant explains the process and tells Emma that she’s under no obligation to donate the net sale proceeds.
When they sort and price Emma’s goods, the shop links them to her using a unique donor number on each price tag or on a bar code on each label.
Every time the shop sells any of these goods, it records the amount received against her unique donor number. Before the charity can make a Gift Aid claim on the net proceeds from the sale of Emma’s goods, it writes to her (using the template letter) to tell her the total net amount raised from selling her goods. The letter / email asks her to contact the charity within 21 days if she wants to keep any of the ‘net sale proceeds ‘from the charity.
Emma is happy to donate all the net sales proceeds mentioned in the letter / e-mail, so she doesn’t reply. At the end of the 21 day period the charity can assume Emma is content to donate the net proceeds, and can treat them as a Gift Aid donation.
Alternative Methods ‘A’ and ‘B’
3.42.10 If goods are given to a shop operated by the charity itself to sell those goods on behalf of the individual, the charity must use ‘Method A’ or the Standard Method to operate the Retail Gift Aid process. This is because the charity is both the donor’s agent and recipient of any Gift Aid donations. However, if the goods are given to a shop operated by a trading subsidiary company of a charity that sells donated goods on behalf of an individual, it can use either ‘Method A’ or ‘Method B’ or the Standard Method. Both methods A and B allow the individual to specify when signing up to Gift Aid at the start of the process that they will donate net sales proceeds up to a certain amount in each tax year without the charity needing to ask them every time.
Method A for charities that directly operate their own charity shops
3.42.11 Method A is for charities that directly operate their own shops. Under this method of operating the Retail Gift Aid process it is not necessary for a charity to send letters during the tax year to each individual when the net proceeds from selling their goods are less than £100 in that year. The charity must obtain the agreement of the individual when they bring the goods to the shop to sell. They must make it clear to the individual that, if the total net sale proceeds in a tax year are below £100, the individual won’t be offered any money back before the charity treats the net proceeds as a donation and claims Gift Aid. This is on the basis that the individual has agreed to donate the money to the charity. If the net proceeds from the sale of goods are more than £100, the charity must contact donors to ask if they will also donate the proceeds over £100 to the charity.
Once the limit of £100 has been exceeded in any given tax year, the company or charity can either:
- send a letter or e-mail to the individual and then write again each time further goods are sold
- wait until the end of the tax year and send one letter or email detailing the total amount raised in the year
and in either case the individual must be given at least 21 days to let the charity know whether they want to donate to the charity the amount raised in excess of £100.
In either case, the charity will NOT be able to claim Gift Aid on the excess over £100 until the donor has been sent the notification by letter or email and 21 days have elapsed without a response.
The individual should also be told that they will receive a letter or email at the end of the tax year informing them of the total amount raised from the sales of their goods. Individuals who can claim higher rate tax relief need this letter to enable them to claim their tax relief. The charity must use the following template letters when writing to donors. Charities can add additional information to the letters or alter the opening and closing sections but the words in italics must be used.
In-Year Gift Aid template letter for sales above the £100 limit: method A. To be implemented by 1 January 2016.
Gift Aid template letter for the end of year: method A. To be implemented for the tax year 2015 to 2016 and sent out by 31 May 2016 and within 2 months of tax year end thereafter.
Sam brings a bag of shoes to a shop run by a charity, and agrees that they can sell all the shoes on her behalf. The shop assistant explains the process and tells Sam that she’s under no obligation to donate the sale proceeds.
Sam agrees to donate the net proceeds up to £100 and accepts that the charity will not contact her during the tax year if the sales proceeds do not exceed £100.
She completes a Gift Aid declaration naming the charity that operates the shop and signs an agreement for the charity to sell her donated goods.
The shop’s staff link Sam’s goods to her using a unique donor number or bar coded label on each price tag. When the shop sells any of her goods, it records the sale proceeds against her unique donor number.
The net proceeds raised from the sale of Sam’s shoes is £83. As this is below £100, the shop doesnot need to ask her to confirm she wants to donate the proceeds to the charity.
If the charity had raised net sales proceeds of £120 from selling Sam’s shoes, it would have to send her a letter or e-mail either during the year or at the end of the tax year telling her the amount of the sale proceeds and asking her to contact the charity if she has not paid sufficient tax or her details have changed. But they must also tell her to let the charity know within 21 days if she wants to keep any of the sale proceeds over £100.
Whatever amounts are raised from sales made under this method, at the end of the tax year the charity will send Sam a letter or e-mail informing her of the total net proceeds raised from the sale of her goods during the year. They should also ask her to contact the charity within 21 days, if she has not paid sufficient Income and / or Capital Gains Tax to cover the Gift Aid claimed back by the charity, or if her contact details have changed.
Method B - only for charity shops run by a separate entity such as a subsidiary trading company
3.42.12 Method B is for charity shops where Retail Gift Aid is managed and operated by a subsidiary trading company of a charity. This method of operating the Retail Gift Aid process is similar to Method A but it can only be used where a trading company receives the goods, sells them on behalf of the donor, and then transfers the donated proceeds to the charity. For the purpose of this process it doesn’t matter whether the company owns the lease to the shop or not.
The trading company can:
- be the operator of all the retail selling for the charity
- just sell donated goods under Method B and operate that process for the charity
- sell new goods, and the donated goods under Method B and operate that process for the charity
The company must monitor and record the total net sale proceeds raised from the goods sold on behalf of each individual during each tax year.
3.42.13 The procedure where an individual takes goods to a charity shop run by a subsidiary trading company is that they sign an agency agreement with the company to sell donated goods under Method B. The donor also makes a Gift Aid declaration to the charity operating the shop. The agreement confirms that the company will act as the individual’s agent to sell the donated goods and that the net proceeds raised will be gifted to the charity automatically as long as they don’t exceed £1,000 in any tax year. The agreement must state that the individual and the company are entering into an agency arrangement and that the company will sell goods on behalf of the individual in return for a commission (or may dispose of them if they can’t be sold). The company must make clear to the individual that, if the total net sale proceeds in a tax year are below £1,000, the individual will not be offered their money back before the charity claims Gift Aid, because the agreement committed the individual to donate the money to the charity.
£1,000 is the maximum net sale proceeds to which Method B can apply, with individuals committed to donate all the proceeds to the charity. Charities and their trading companies can offer a lower amount if individuals consider £1,000 to be too high for this purpose.
Once the limit of £1,000 has been exceeded in any given tax year, the company or charity can either:
- send a letter or e-mail to the individual and then write again each time further goods are sold
- wait until the end of the tax year and send one letter or email detailing the total amount raised in the year and in either case give the individual at least 21 days to let the charity know if they don’t want to donate to the charity the amount raised in excess of £1,000
In either case, the charity will NOT be able to claim Gift Aid on the excess over £1,000 until the donor has been sent the notification by letter or email and 21 days have elapsed without a response.
In-Year Gift Aid template letter for sales above the £1,000 limit: method B. To be implemented by 1 January 2016
Template letter for Gift Aid at the end of year - Method B. To be implemented for the tax year 2015/6 and sent out by 31 May 2016 and within 2 months of tax year end thereafter.
Bill brings some paintings to a charity shop run by a trading company, and agrees that the shop sell them all on his behalf.
The shop assistant explains the process and tells Bill that he’s under no obligation to donate the sale proceeds. Bill agrees that if the net sales proceeds from the paintings or subsequent donations are no more than £1,000 in the tax year, the charity will not contact him during the tax year to confirm he wishes to donate the proceeds to the charity.
Bill completes a Gift Aid declaration naming the charity represented by the shop, and also signs an agency agreement with the shop to sell his paintings.
When the shop’s staff sort and price the goods, they link Bill’s goods to him via a unique donor number on the price tag or a separate bar coded label.
When the shop sells any of these goods, it records the amount raised against Bill’s unique donor number.
The shop keeps a record of the net sales proceeds from the sale of Bill’s paintings and the total comes to £750.
The charity will need to write a letter or email to Bill at the end of the tax year informing him that during the tax year they raised a total of £750 from selling his paintings and asks him to contact the charity within 21 days, if he has not paid sufficient Income or Capital Gains Tax to cover the Gift Aid claimed back by the charity, or if his contact details have changed.
If there’s a further sale in the year that raises net sales proceeds of £300, the total net sale proceeds will have exceeded the £1,000 limit and the charity must write to Bill each time the amount above £1,000 has been exceeded, or at the end of the tax year, to tell him the value of the net sale proceeds and ask him to contact the charity within 21 days if he wants to keep any of the net sale proceeds over £1,000. They must in any case write to him at the end of the tax year asking him to contact the charity if he has not paid sufficient tax during the year, or his details have changed.
Moving to Method A or B
3.42.14 If a charity uses the ‘Standard Method’ for claiming Gift Aid on donations raised from the sale of goods in its shops, it can switch to one of the simplified methods at any time. The appropriate limit of £100 or £1,000 will then apply during the remaining part of the tax year. Only goods sold after the simplified process is implemented fall within the new arrangements.
The charity must consider how it will move its donors from the standard method to Method A or B. The easiest way is to move everyone at the start of a tax year, but there’s no legal requirement to do this. A charity can choose to run 2 processes simultaneously if it so wishes.
When individuals have already signed an agreement with the charity to convert their donated goods into Gift Aid donations, a charity can either wait for them to visit their charity shop again and then ask them to sign a new agreement for the simplified method, or the charity can write to all existing donors and explain that its sale process has changed. The charity can tell people that it will assume they agree to the new process applying to the future sales of their donated goods unless they tell the charity otherwise within 21 days. The charity should remind the individual of the need to have paid sufficient Income Tax and / or Capital Gains Tax to cover amounts up to the new agreed limit, as well as amounts donated to other charities. It must also send the individual a letter at the end of the tax year confirming the net sales proceeds and requesting notification of any change in tax status or contact details.
In-Year / End of Tax Year Letters
3.42.15 The charity must use the compulsory text in the templates when sending both in-year and end of tax year letters to the individual. Charities are free to add additional information to the letters or alter the opening and closing sections, but the words in italics must be used.
‘End of tax year letters’ are compulsory for charities operating the retail Gift Aid process using Method A and Method B. In both cases the individual must always be sent a summary of the net proceeds raised from the sale of their goods for the tax year by 31 May each year. Telling individuals of the net proceeds raised provides information which can help them check that they have paid sufficient tax to cover the Gift Aid that has been claimed. It also helps higher rate tax payers to claim in the additional tax relief on their donations.
Any adjustments required as a result of the donor notifying the charity of a change in tax status or other details must be actioned by the charity within 2 months.
HMRC recommend that all in-year and end-of-tax year Gift Aid letters are sent by post. Charities may use e-mail, but if a charity is alerted to an e-mail having been rejected by receiving an ‘undeliverable’ message, they must follow up and send the donor a letter by post too.
Net sale proceeds
3.42.16 When a charity offers an individual the proceeds from the sale of their goods, or claims Gift Aid on the proceeds if they’re donated to the charity, the proceeds in question are the ‘net sale proceeds’. This means the total proceeds raised after deduction of any sale commission and related VAT charged by a charity or its trading company subsidiary.
If the charity or the trading company is VAT registered, it must charge VAT on the commissions it charges. The commission and VAT charged by the charity or its trading company to the individual aren’t eligible for Gift Aid, because this is a payment made under the terms of an agency contract.
John asks a charity shop run by a subsidiary trading company to sell a vase on his behalf and completes a Gift Aid declaration.
John is asked to sign an agency agreement under Method B and is told that there is a 5% commission for handling the sale.
The vase sells for £1,050.
Under the terms of his agency agreement John has told the shop that he doesn’t want to receive net sale proceeds under £1,000.
The charity shop takes a sale commission of £52.50 plus £10.50 VAT out of the £1,050 and passes the balance to the charity.
The charity can claim Gift Aid on £987 but not the £63 commission fee (including VAT).
The charity or its trading subsidiary must account for VAT on commission fees that are a taxable supply of services. If the goods were sold by a shop operated directly by the charity (where the limit is £100 under Method A) and the charity was not registered for VAT, there would be no VAT to deduct.
Agency Agreement Method A and B
3.42.17 Charities must ensure that the agency agreements they use make clear that they are legally binding contracts.
The individual needs to be told that the charity or its trading subsidiary will be selling their goods on their behalf so that the net sale proceeds can be given to the charity as a Gift Aid donation. They need to be aware that they must pay enough Income Tax and / or Capital Gains Tax to cover the tax the charity will reclaim through Gift Aid on the donated sale proceeds.
There needs to be a written agreement between the individual and the charity, and the charity needs to keep a record of each individual’s agreement. The agreement can be a document signed by the donor, or a leaflet or information sheet given to the donor. The form of the agreement is for the charity to decide but it must cover the following points:
- the individual must be made aware that the charity is acting as agent in selling their goods
- the individual must be made aware that they’re not donating the goods, but arranging for the charity to sell them on their behalf
- the agreement must specify the rate of commission charged for selling the individual’s goods on their behalf. Gift Aid can only be claimed on the balance donated after commission and related VAT has been deducted
- the agreement should specify that if the cumulative net sales proceeds are less than £100 for Method A or £1,000 for Method B in a tax year, the charity will not have to notify the individual before it claims Gift Aid on the amount
- if the net sales proceeds exceed £100 or £1,000, the agreement should specify that the charity will contact them, so that the individual has an opportunity to decide whether to donate the proceeds in excess of £100 or £1,000. The letter should give the individual 21 days to let the company know if they do not want to donate the additional amount to the charity
- the agreement should specify that an end of tax year letter will be sent, whether or not the cumulative net sales proceeds are less than £100 or £1,000 in a tax year
3.42.18 Commissions charged by charities or their trading subsidiaries must be set at a reasonable rate to cover the costs of operating the scheme. Charities may be asked by HMRC to explain how they’ve set their commission rates. Because the agency arrangement for selling goods on behalf of an individual is a business activity, commissions charged are a consideration for a taxable supply and VAT must be accounted for at the standard rate. If the commissions charged do not reflect the real costs of acting as agent to sell goods on behalf of individuals, it will not constitute a business for VAT purposes. Under these circumstances any VAT incurred on costs associated with the agency arrangement will not be recoverable by the charity or subsidiary trading company.
Any commission received by the charity or its trading subsidiary company will be a trading receipt and potentially subject to Income Tax or Corporation Tax as well as VAT. For guidance about trading by charities see paragraph 3.42.22
3.42.19 A simple gift of goods to a charity by a private individual will have no VAT implications for the donor or the charity.
3.42.20 The sale of donated goods by a charity (or by a trading company that donates its profits to the charity) is a zero-rated supply for VAT purposes. VAT incurred by a VAT-registered charity in relation to these supplies can therefore be reclaimed as input tax. No VAT reliefs are available to CASCs, so this paragraph applies only to charities.
3.42.21 When a charity or its trading company is acting as an agent, it’s providing a service of selling goods on behalf of an individual and if it’s VAT registered, it will have to account for output VAT on its commission charges.
3.42.22 For Retail Gift Aid purposes the agent must be a disclosed agent. It is important that the charity makes their customers aware that they are selling goods on behalf of individuals. They can for example, put up a notice or poster to that effect in the shop window or by the till and ensure that items being sold under the Retail Gift Aid arrangements are clearly marked up using different coloured price tickets or labels.
3.42.23 When VAT is incurred on expenditure that directly relates to goods being sold through the agency arrangement, that VAT isn’t recoverable as input tax even if the charity or its trading company bears the cost. So if, for example, electrical goods need to be tested before they can be sold, any VAT charged on the costs of the testing can’‘t be recovered as input tax. This is because the goods still belong to the individual for whom the charity or trading company is acting as agent.
Further guidance on VAT can be found in VAT Notice 700: the VAT guide.
Using commercial operators to sell donated goods
3.42.24 Charities can use commercial operators to sell certain goods on behalf of the individual, who then donates the proceeds to the charity. This usually happens when a charity shop puts some goods into a commercial auction or sells goods on a website. Commercial operators will charge their own sale commission, which is deducted from the sale proceeds. Commercial operators will almost certainly be VAT registered and so will charge VAT on the commission.
The use of auctioneers or a website that charges commission is a complicating factor, but the charity or trading company could still act as agent for the individual in arranging the sale by auction. The auctioneer’s commission and VAT would need to be deducted from the selling price before arriving at the amount that is due to the individual. The charity or trading company would then deduct its commission and VAT from this amount to arrive at the net sales proceeds. Under this arrangement the VAT charged on the auctioneer’s commission is in effect borne directly by the individual, so the charity/trading company has no right to recover it as input tax.
Fred asks a charity shop to sell a table on his behalf and completes a Gift Aid declaration.
Fred is asked to sign an agency agreement and is told that there’s a 5% commission for handling the sale.
The shop sends the table to an auction house for sale.
The table sells for £400.
The auction house deducts commission of £48 - 10% plus VAT - leaving £352.
The charity shop deducts its commission of £17.60 plus £3.52 VAT, leaving net sales proceeds of £330.88.
Fred, if notified by the charity under Standard Method or Method A, does not reclaim the sale proceeds.
The charity can claim Gift Aid on £330.88, but not the £17.60 commission fee, £3.52 VAT or the £48 paid to the auction house.
As long as the individual is under no obligation to give the proceeds to the charity, Gift Aid can be claimed on any amounts that are donated. Care should be taken to ensure that any Gift Aid declaration names that charity.
Trading income and charity shops
3.42.25 Where charities sell donated goods that they own, the activity isn’t normally treated as trading and so any profits aren’t taxable. However, if they provide a service in return for payment, in this case by selling goods on behalf of others in return for a commission, that service may amount to taxable trading activity. If no commission is charged, the charity will not be trading.
Regardless of whether a commission is charged, all direct and indirect costs incurred in selling goods on behalf of other people will be non-charitable expenditure, and may affect the charity’s entitlement to tax exemption. This is different from the traditional method of charities simply selling only donated goods to raise money for the charity, which isn’t a trading activity and doesn’t normally involve non-charitable expenditure. There are also implications for VAT-registered charities, when goods are sold on behalf of other people, see paragraph 3.42.21.
Charity trustees are required to show that the expected proceeds from selling goods on behalf of others are expected to exceed costs of running the scheme.
Charities may decide that using a subsidiary trading company is the best way of selling goods on behalf of others. The use of a trading company stops a charity incurring non-charitable expenditure or putting its charitable funds at risk. The trading company can then pass its profits to the charity under company Gift Aid, to minimise any corporation tax liability on the profits.
Capital Gains Tax
3.42.26 When an individual disposes of assets, a charge to Capital Gains Tax can arise, depending on the nature of the asset and its value. Where a personal possession worth more than £6,000 is sold, any gain made could be chargeable to Capital Gains Tax. Further guidance on Capital Gains Tax is available.
If a donor knows that a personal possession will be liable to a capital gains charge when it’s sold on their behalf, they may want to consider whether it would be more beneficial to them to gift the asset directly to the charity instead. The donor would then be able to claim relief from Capital Gains Tax on the disposal of the item to the charity. The charity won’t be able to claim Gift Aid on the net sale proceeds, but the charity won’t be charged Capital Gains Tax when it sells the asset, if the proceeds are used for charitable purposes only.
Record keeping for Gift Aid
Tracking of sales of goods to individual
3.42.27 All charities, whether using the Standard Method, Method A or Method B must be able to link the goods sold on behalf of each owner and keep a running total of the amounts raised from the sale of goods on their behalf in each tax year. Charity shops need to be able to identify when the total raised during a year from all goods sold on behalf of each individual has exceeded the agreed limit, and tell the donor the amount raised at the end of the tax year.
Charity shops must allocate a unique identity code or number to each donor and use this on the price labels attached to their goods so that the proceeds from the sale of each item can be linked to the correct donor. Goods sold on behalf of individuals must be identifiable from other goods or stock that has been bought in by the shop. This is usually done using different price labels on the goods.
For audit purposes the charity should retain all documentation associated with claims for Gift Aid on the proceeds from the sale of goods on behalf of individuals.
This includes the following items:
- the donor’s dated Gift Aid declaration
- a copy of any written agreement with the individual under which the charity (or its trading subsidiary) is appointed as agent to sell goods on the person’s behalf
- records of any changes in process between the Standard Method, Method A or Method B and the movement of individuals from one process to another
- records to show that the individual has been notified of the net sale proceeds where required
- records to show that end of tax year letters have been sent to all donors by charities operating either Method A or B
- records tracing gift aid claims back to the sales of donated goods to individual donors
- if goods are sold by a trading subsidiary of a charity, records to show how the net sales proceeds are transferred to the charity
- records of checks the charity has carried out on each of its shops to ensure that the Retail Gift Aid process is operated correctly
Charities should also keep records of staff/volunteer training and guidance, to demonstrate that all their staff and volunteers have a good understanding of the processes.
3.42.28 If during an audit or other review of a claim for repayment of tax on donations obtained from the sale of a donors’ goods HMRC identifies individuals who have not paid enough Income Tax and/ or Capital Gains Tax to cover the tax claimed by a charity, the donor will be liable to repay the difference to HMRC. Under the ‘Charge to tax’ legislation (S.424 ITA 2007) the person liable for any tax charged under this section is the individual donor not the charity. HMRC will not tell a charity the name of any donors that are identified as not paying enough tax to cover the tax claimed following the conversion of their goods into Gift Aid payments.
If a Charity becomes aware that it has claimed Gift Aid on donations in error because the donor(s):
- hasn’t completed a Gift Aid declaration
- informed the charity not to treat his/her donations as Gift Aid donations. • payments to the charity were not gifts
Then the charity should make an appropriate adjustment to its next Gift Aid claim to repay the Gift Aid claimed to date.
If donors, whose goods have been converted into a Gift Aid donation, notify a charity, at any point, that they have become a non-taxpayer, then the charity is not responsible for paying back any Gift Aid claimed to date. The charity must ensure, however, that the donor’s record is adjusted so that Gift Aid is not claimed on any further sales of the donor’s goods or on any future donations.
3.42.29 When a charity uses any of the 3 methods for operating Gift Aid on the sale of goods on behalf of individuals, it must ensure that the method chosen is operated correctly. In particular:
- all shop staff involved in the process must undergo training to understand the importance of following the correct procedures and to correctly explain the scheme to donors. Shop staff need to understand that goods can’t be sold on behalf of individuals who do not pay sufficient UK Income Tax and/or Capital Gains Tax. All staff operating the scheme should be aware that anyone who joins the charity’s scheme and doesn’t pay enough tax may have to pay back to HMRC the tax claimed by the charity
- operating incentive bonus schemes or other monetary rewards systems relating directly to operating a Retail Gift Aid Scheme is unacceptable. The take up of the Retail Gift Aid Scheme in individual shops within a charity may be monitored and reviewed, however, as an accepted part of the normal commercial and compliance management performance of the charity
- inappropriate schemes, specifically designed to increase Gift Aid income, including targets for Gift Aid take up, publishing league tables of shops, giving bonuses, incentives, or otherwise rewarding increased Gift Aid claims from individual shops might lead to some shop staff not following processes correctly. Charities with inappropriate schemes can’t claim Gift Aid on the proceeds from the sale goods sold on behalf of individuals. Where targets or other schemes are in place, they should only be used for monitoring performance and identifying training needs, rather than to directly reward shop staff
- charities must undertake regular audits on a periodic or sample basis, as appropriate, to ensure the processes are being followed correctly. Records of such audits must be kept
Chapter 3.43 Charity events
3.43.1 Charities often hold events (dinners, concerts, firework displays, etc) to raise funds and this section explains whether all or part of the payment to attend the event can be gift aided.
3.43.2 To be eligible for the Gift Aid Scheme a payment must be a freewill gift of money to charity, that is, there must be no compulsion about making the payment. So the payment must be a wholly voluntary payment and not linked to attendance at the event.
3.43.3 A payment to purchase a ticket (or an admission charge) to attend a charity event isn’t a gift to charity but the purchase of a right to attend the event. Without buying a ticket a person can’t attend the event, so there’s no freewill in making a payment - that is, a person must pay the ticket price to attend the event. Such payments are not eligible for Gift Aid.
3.43.4 In the same way, a payment described as a ‘minimum donation’ or a ‘donation’ to attend an event is not a freewill payment. Again, a person must make the payment to attend the event. The ‘minimum donation’ or ‘specified donation’ is, in fact, the admission charge.
3.43.5 The following payments to attend an event aren’t gifts to charity:
- payment to purchase a ticket
- payment to gain admission
- a required minimum donation
- a required specified donation
All of the payments described must be paid in order to attend the event and so aren’t freewill gifts to charity. Such payments aren’t eligible for the Gift Aid Scheme.
Ticket price plus a suggested donation
3.43.6 A charity can charge what it likes for a ticket to attend its event. However, it shouldn’t put the charity’s funds at risk and, therefore, should set the ticket price at a level to at least recover its costs.
3.43.7 A charity can, therefore, charge a set ticket price (on which Gift Aid can’t be claimed) and, in addition, request a donation that can be gift aided. However, any suggested donation:
- must not be compulsory such that it has to be paid, in addition to the set ticket price, to attend the event - that is, the payer must be able to pay only the ticket price to attend the event
- the payer must be aware that the suggested donation isn’t compulsory and that they need only pay the set ticket price at the time they make the suggested donation (the ticket and/or event literature must make it clear)
- the charity must not give any preferential treatment to those who do make a donation over those that choose not to - that is, the tickets must be allocated on a ‘first come first served basis’
3.43.8 A payment described as a ‘minimum donation’ or a ‘specified donation’ that has to be paid in addition to the set ticket price isn’t a freewill gift and can’t be gift aided. In these circumstances, the set ticket price plus the minimum donation or the specified donation is the actual ticket price and no part of the payment made (ticket price plus minimum/specified donation) can be gift aided.
A charity organises a dinner dance and incurs the following costs:
Hire of venue = £1,000
Catering costs = £3,000
Orchestra/singer = £2,000
Total costs = £6,000
The proposed number of attendees is 100 and the charity hopes to make (say) £4,000 on the event or £40 per attendee.
The cost per attendee is £60 (£6,000/100) and so the charity is looking at a set ticket price at £100 (£60 + £40).
The charity charges £100 for each ticket.
There’s no gift to charity, all the proceeds (£10,000) are from ticket sales and none qualify as Gift Aid payments.
Note: sometimes a charity seeks to claim Gift Aid on the £4,000 (£40 per person) on the basis that the amount over and above the costs is a donation. However, the £4,000 (proceeds £10,000 less costs £6,000) is a profit and not a donation.
The charity charges £65 per ticket and also asks for a minimum donation of £35.
To attend the dinner an attendee must pay £100 (£65 + the minimum donation of £35). A person may not buy a ticket or attend by only paying £65.
There’s no gift, the whole of the £100 is a compulsory payment to attend the dinner and no part of it is eligible for the Gift Aid Scheme.
The charity charges £80 per ticket and, in addition, asks for a suggested donation of £20. The charity makes it clear on the back of the ticket that the £20 is only a suggested donation and that attendance at the dinner can be obtained by only paying the set ticket price of £80.
The £80 paid for the ticket can’t be Gift Aided.
However, as the charity made it clear that a payment to attend the dinner was only £80 (the set cost of a ticket) then any payment made in excess of the £80 can be Gift Aided. So the suggested £20 donation or any other donation in excess of the £80 paid for a ticket can be Gift Aided.
The charity charges £100 for each ticket. However, a benefactor pays the full cost (£6,000) to the charity so that it can pay for the dinner.
For Gift Aid purposes, the situation is exactly the same as for example 1.
Who meets, or how the costs are met, isn’t important when determining whether a payment to attend the dinner is a gift. The charge to attend the event remains at £100 even though the charity’s cost is met by the benefactor. So, none of the £100 payment can be Gift Aided.
Note: the benefactor has made a gift to the charity of £6,000 and so he can Gift Aid his £6,000 gift provided all the requirements of the Gift Aid Scheme are satisfied. Any free tickets (£100 each) given to the benefactor are benefits for the purposes of the Gift Aid benefit limit (which are £300 for a £6,000 donation) - so 1 free ticket valued at £100 is within the Gift Aid benefit limit.
The charity charges £100 for each ticket. However, the venue/orchestra/caterer all waive their charges and so it costs the charity nothing to put on the dinner dance.
None of the £100 paid can be Gift Aided as it is a payment to purchase a ticket to attend the dinner.
Unlike example 4, the venue/orchestra/caterer can’t Gift Aid their contributions because they have not made any payments to charity but simply waived their fees – that is, there’s no payment of ‘a sum of money’.
The charity decides that it won’t make any charge to attend the event and will rely on expected donations from previous donors to more than cover costs.
Charity trustees are obliged to take proper care of charity funds and not expose them to undue risk. Any trustees considering this kind of approach would have to be able to demonstrate that they had made a properly informed and considered decision that a better return on funds laid out could be achieved by not charging for tickets. Failure to do this could result in the costs being treated as non-charitable expenditure and the trustees being personally liable for any loss of funds. Professional advice should be taken before embarking upon such a course. Donations received in such circumstances could be eligible for Gift Aid.
Chapter 3.44 Digital giving and social giving accounts
3.44.1 We recognise that there are many new and innovative ways of giving to charity through digital platforms including social media and fundraising websites.
3.44.2 The general rule at 3.4.1 still applies, however, that donors must only claim Gift Aid when donating their own money when using social giving opportunities. The donor must also still give the charity a valid Gift Aid declaration, to declare that they have paid, or will pay, UK income tax or capital gains tax in support of a donation.
3.44.3 So, you can’t Gift Aid money collected from family, friends or work colleagues, or money raised from fundraising activities such as jumble sales, raffles, tombola’s or ticket sales etc.
3.44.4 If you have a social giving account with a charity fundraiser or register a credit or debit card with a fundraising website then you can only Gift Aid your own donations made through your social giving account. You can use your account to transfer money given to you by others to pass on to charity, but you can only claim Gift Aid on your own donations that are charged to your account, and for which you do not receive a compensating payment from others.
3.44.5 If you donate to charity with a text message then you can use Gift Aid if you are donating your own money and you are the person who is legally responsible for paying the mobile phone bill.
3.44.6 Some social giving accounts allow a donor to leave a supportive message for a fundraiser participating in a sponsored event, or a dedication message in remembrance of a loved one. It is okay to extend such messages beyond the donor as long as the donation is still of the donors own money.
3.44.7 Our guidance at Chapter 3.38 about Adventure fundraising events, sponsorship and Gift Aid should also be followed when supporting participants through social giving accounts or text donations.
3.44.8 Julia donates £50 of her own money to charity using her social giving account and completes a Gift Aid declaration. Julia includes a supporting note with her donation which says ‘with best wishes – Julia Smith and family’. This donation would qualify for Gift Aid because the donation is solely from Julia, despite the inclusion of other names on the supporting message.
3.44.9 Rahul is running a marathon. Rahul’s colleague Peter passes a collection around his office and raises £400.Peter uses his social giving account to donate this money to Rahul’s chosen charity and includes a supporting note which says ‘good luck, Rahul – from all your colleagues’. This donation would not qualify for Gift Aid because the donation has not come solely from Peter.
3.44.10 Barry is also running a marathon. His Mum, Cindy, gives him £100 which Barry donates to his chosen charity using his own social giving account and includes the message ‘From Mum and Dad’. This would not qualify for Gift Aid because Barry has not donated his own money.
3.44.11 Barry runs a marathon again the following year. Cindy now has her own social giving account and uses it to donate £100 to Barry’s chosen charity and includes the message ‘From Mum and Dad’. This donation would qualify for Gift Aid because the donation is solely from Cindy, despite the inclusion of other names on the supporting message.
3.44.12 Kate organises a ‘Fun Day and exhibition match’ at her local rugby club in memory of her late father. Entry is by ticket only, and other funds are raised through a raffle, tombola, fairground rides and a bouncy castle. £1,000 is collected from all sources and Kate pays this to her chosen charity using her social giving account and includes the message ‘In loving memory of my father, Frank’. This payment would not qualify for Gift Aid because it has been received in return for services, rights or goods provided to many people. No donations have been received, and the payment is not a donation from Kate.
3.44.13 Daniel works as a barman and pledges to give his Friday tips from his shift to a fundraising telethon broadcast that night. Daniel receives £30 in tips and uses his social giving account to donate this money to the telethon appeal. This donation would qualify for Gift Aid because the donation is solely from Daniel. The tips were received from many people, but are part of Daniel’s income for tax purposes and he has decided to donate them to charity.
3.44.14 Jenny organises a collection at The Red Lion to raise funds for a new lifeboat. She collects £240 from others and decides to top this up to £250 with £10 of her own money. Jenny uses her social giving account to pay the £240 to a lifeboat charity and leaves a message ‘from the regulars at The Red Lion’. Jenny can’t claim Gift Aid on this payment because it is not a donation of her money. £240 has been charged to her debit card but she has been compensated by the £240 collected from the regulars who can now check online that their donation has been passed on to a lifeboat charity. In a separate transaction, Jenny donates £10 to the same lifeboat charity through her social giving account to top up to £250 and leaves a further message ‘from Jenny at The Red Lion’. This £10 donation would qualify for Gift Aid because the donation is solely from Jenny.