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HMRC internal manual

VAT Charities

Fund-raising: Donations


You may have to decide whether an amount of money received by a charity is a donation or a consideration for a supply of goods and/or services.

A donation is an amount (or amounts) which is freely given and to which no conditions are attached by the donor, who receives nothing in return for making the payment. Donations are outside the scope of VAT.

A consideration is an amount or amounts received in return for goods and/or services. In order that a supply for a consideration can be made there must be at least two parties and a written or oral agreement between them under which something is done or supplied for the consideration. There must be a direct link between the supply and the consideration. A consideration, received in the course of business, is within the scope of VAT.

To assist you in deciding whether an amount is a donation or a consideration you will need to consider the following:

  • Does the donor receive anything in return for the amount given?
  • Are there any conditions attached, that go beyond the requirement to account for the expenditure of the funds?
  • If the donor does not benefit, does any particular third party benefit instead? ie is it consideration for a supply to a third party?
  • What do the terms and conditions of the contract indicate?

How do charities seek donations?

Charities seek donations in a number of different ways, some of the most common are:

  1. Street collections

This is a traditional form of fund-raising where volunteer collectors stand in the street with collecting tins or buckets and solicit donations from the passing public. In most cases those contributing will be offered a token or acknowledgement of their donation in the form of a lapel sticker, emblem or badge. Providing such tokens have no intrinsic value and are low cost we do not regard the payment as the consideration for the supply of the token. We would normally regard low cost to be less than £1 per token.

However if a minimum or fixed price is required before a token is given such a payment is regarded as the consideration for the supply of the token. The value of the supply would be either the fixed or minimum price. Any amount above the minimum price can be treated as a donation. This is because the payment cannot be said to have been freely given. If an amount is suggested for the token, any amount actually given will be regarded as a donation. This is because the donor decides how much to pay and any amount is therefore freely given.

  1. Mail shots

Many charities send requests for donations to both known supporters and, more randomly, to households. As well as a letter requesting a donation such mail shots may include tokens such as pens, car stickers carrying the charity’s logo or a basic flat sheet calendar. As in all cases, whether a donation is made or not, the recipient of the mail shot retains the tokens, any monies sent to the charity are regarded as donations. (Please see VCHAR11000 for more information on postal appeal packs.)

  1. Face to Face

Nowadays many charities raise funds by face-to-face collecting. Charities that use this type of fund-raising will normally employ commercial agents, although some will use their own employees. Whatever the case the canvasser, wearing a bib bearing the charity’s name, will approach members of the public in the street and ask them to sign a direct debit mandate in favour of the charity for a regular amount, decided by the donor. We regard such payments as donations, as the donor usually neither expects nor gets anything in return. In some cases charities will send the donor a magazine three or four times a year that shows the donor how their donations are being spent but the donation is still outside the scope of VAT.

  1. Charity shops

Charity shops are common on most High Streets. Unwanted items of clothing, books, toys etc are given to charities by members of the public. As such items are almost always freely given; with the donor receiving nothing in return, they are donations of goods, mostly for onward sale but sometimes for use in the charitable activities.

It is becoming more common for charity shops to act as an agent and sell goods on behalf of the supporter. In these situations the goods are not donated to the charity, the ownership remains with the supporter. Once the goods have been sold the supporter usually donates the proceeds of the sale, minus a commission and any VAT on the commission, to the charity. As long as the net proceeds of the sale are freely given to the charity this is a donation of money and is outside the scope of VAT.

There may be instances when a commercial organisation gives goods to a charity for onward sale. Where such goods are freely given and the organisation receives no benefit in return they are regarded as donated goods. But when, by prior arrangement, the commercial organisation receives a benefit from the ‘donation’ the goods are not regarded as ‘donated’. This will happen, for example, if a supermarket chain donates goods to a charity and agrees, for a fee, to sell them, on behalf of the charity, in their stores. If you identify transactions where it is unclear whether the goods have been donated you should examine all contracts, agreements and correspondence to determine the true nature of the transaction. Please see VCHAR7000 for more information on charity shops.