Fundraising activities

Contents

36. Tax and VAT. Concessional tax relief and the statutory VAT Exemption for fund-raising activities

For tax purposes, where a charity’s trading activities are not covered by one of the three statutory exemptions for trading referred to above, the profits will be taxable. However, it may be possible for the charity to take advantage of Extra Statutory Concession C4 that applies specifically to fund-raising events. If an event falls within the concession HMRC Charities will not seek to tax the profits arising from it. The full text of this concession is set out below.

For VAT purposes there is an equivalent statutory provision, in Group 12, Schedule 9 of the VAT Act 1994.

37. Tax. The tax concession

"Certain events arranged by voluntary organisations or charities for the purpose of raising funds for charity may fall within the definition of "trade" in Section 832 ICTA 1988 with the result that any profits will be liable to income tax or corporation tax. Tax will not be charged on such profits provided:

a) the event is of a kind which falls within the exemption from VAT under Group 12 of Schedule 9 to the VAT Act 1994 and

b) the profits are transferred to charities or otherwise applied for “charitable
purposes."

38. Tax. Application of the concession for tax purposes

HMRC Charities will decide whether the extra statutory concession applies in individual cases. It will not apply where tax avoidance is involved. The Extra Statutory Concession for tax purposes mirrors a statutory exemption for VAT purposes. If an event meets the criteria for the VAT exemption, then it will automatically qualify for the exemption from tax. For further information charities should contact the HMRC Charities helpline 08453 02 02 03 Monday to Friday 8 am to 6 pm..

39. VAT. Application of the statutory VAT exemption

Subject to all the conditions being met the proceeds of a charity fundraising event will be VAT exempt and therefore not subject to VAT.

If, within a VAT exempt fundraising event, sales of goods or service are made to which a zero-rate applies (e.g. printed matter or children’s clothing) then those zero-rated sales remain zero-rated despite the fact they are sold in the course of a VAT exempt fundraising event. Such sales are taxable rather than exempt.

Any VAT incurred on expenses directly incurred in putting on the event will not be recoverable, even if the charity is VAT registered. However, if VAT is incurred on expenses relating to both exempt and taxable activities a portion of the VAT may be reclaimed if the charity is VAT registered. For more information please see VAT Notice 706 - Partial exemption.

40. VAT. Subsidiary companies and fundraising activities

If a charity carries on a substantial, regular trading activity it may be required by charity law to set up a subsidiary company to carry on the trade, even if the profits are exempt for both tax and VAT purposes. A subsidiary company may be needed to protect charitable property from being used for non-charitable trading purposes (see the Charity Commission booklet CC35 ‘Charities and Trading').

The statutory VAT exemption also covers fundraising events organised by a corporate body wholly owned by a charity and whose profits (from whatever source) are payable to a charity. This means that a charity’s own trading company can hold fundraising events on behalf of the charity, while still benefiting from the VAT exemption.

41. Tax and VAT. What constitutes a fund-raising event?

HMRC Charities consider the following as different kinds of events which may be held for fund-raising purposes

  • Ball, dinner dance, disco or barn dance
  • Performance such as concert, stage production, and any other event which has a paying audience
  • Film showing
  • Fete, fair or festival
  • Horticultural show
  • Exhibition - such as art, history or science
  • Bazaar, jumble sale, car boot sale, good-as-new sale
  • Sporting participation (including spectators), such as sponsored walk or swim
  • Sporting performance
  • Game of skill, contest, quiz
  • Endurance participation
  • Firework display
  • Dinner, lunch, barbecue
  • Auction of bought in goods

Although this list is quite extensive, there are other factors such as frequency and turnover which are considered by HMRC Charities. These activities may not be business activity for VAT purposes. They may not amount to trading for tax purposes, particularly if not carried on a commercial basis. Helpsheet ‘Fundraising events - exemption for charities and other qualifying bodies’ covers both the tax and VAT issues involved in this exemption, and can give more detail.

42. Tax and VAT. What will happen if an event is not covered by the statutory VAT Exemption and the tax concession?

If an event falls outside the terms of the concession, and it is not covered by the statutory exemptions, standard rated VAT may be due on all or some of the income generated by the event. There may also (subject to the small trading exemption) be a tax liability if the event is non-primary purpose and putting it on amounts to trading. Deciding whether trading is taking place is not always straightforward. This is explored further in HMRC’s Business Income Manual BIM20200. Professional advice can be helpful in this area.

43. Tax and VAT. Are there any tax and VAT benefits if the event does not qualify for the exemptions?

If a charity believes that a particular event or series of events will not fall within the exemptions or concession, it may be possible to organise the event so as to minimise the amount of tax payable.

For example the charity might set a basic minimum charge (which will be taxable as trading income) and invite those attending the event to supplement this with a voluntary donation.

The additional contributions will not be taxable if all the following conditions are met:

a) it is clearly stated on all publicity material, including tickets, that anyone paying only the minimum charge will be admitted without further payment
b) the additional payment does not secure any particular benefit (for example, admission to a better seat in the auditorium) beyond the limits specified in Gift Aid legislation
c) the extent of further contributions is ultimately left to ticket-holders to decide (even if the organiser indicates a desired level of donation). These further contributions may be made under Gift Aid, subject to them meeting the requirements of the scheme
d) for film or theatre performances, concerts, sporting fixtures, and similar events the minimum charge is not less than the usual price for the particular seats at a normal commercial event of the same type
e) for dances, dinners and similar functions the sum of the basic minimum charges is not less than the total costs incurred in arranging the event.

If trustees are considering making no charge and relying on expected donations to more than cover costs, professional advice is recommended. Donations received in such circumstances would be eligible for Gift Aid. However, any trustees adopting this 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.

For VAT purposes, provided conditions a, b, and c are met, additional contributions can be treated as donations and outside the scope of VAT.

44. Tax avoidance and the fund-raising exemption

The statutory VAT Exemption and the tax extra statutory concession are of general application, but it must be borne in mind that in a particular case there may be special circumstances which have to be taken into account in considering their application. The concession will not apply where any attempt is made to use it for tax avoidance.

45. VAT. Competition issues and the fundraising exemption

The statutory VAT exemption is not available where it would be likely to create distortions of competition that place commercial enterprise, carried on by a taxable person, at a disadvantage.

Further information about both the tax concession and the statutory VAT exemption can be found in Helpsheet ‘Fundraising events Exemption for charities and other qualifying bodies’

46. Tax and VAT. Lotteries

Charities enjoy exemption from tax on profits from lotteries run to raise funds for their charitable purposes. This applies so long as the lotteries are promoted and conducted in accordance with a lottery operating licence issued under section 98 of the Gambling Act 2005 or Article 133 or 135 of the Betting, Gaming, Lotteries and Amusements (Northern Ireland) Order 1985.

The profits of such lotteries, promoted by charities, are exempt from tax provided the lottery is conducted within the statutory requirements set out above and the lottery profits are applied solely to the purposes of the charity.

Where a subsidiary company, rather than the charity, is registered as the society under the Gambling Act 2005, or the Northern Ireland equivalent, the lottery profits will belong to the company and not to the charity for tax purposes. The exemption will not apply and the company will need to pass the profits to the charity under Gift Aid to obtain relief from tax.

For VAT purposes, the sale of lottery tickets is exempt from VAT under Schedule 9, Group 4 VAT Act 1994.