Your charity may organise adventure fundraising events such as overseas treks or bike rides where you may pay a third party to arrange the event. Your charity's payment to the third party covers all a participant's costs (travel, insurance, provision of specialist equipment, food, accommodation etc). Your charity may then ask the participant to pay a non-refundable deposit/registration fee and to raise sponsorship funds of a minimum set amount to support the charity, in return for going on the event.
This guide explains the circumstances in which Gift Aid applies to sponsorship payments raised for a charity by participants in these types of adventure fundraising events.
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When someone gives a donation to your charity, they (or people connected to them) may receive something in return - a benefit. As long as the value of the benefit doesn't exceed certain limits the donation will qualify for Gift Aid. If the benefit exceeds these limits, the donation won't qualify for Gift Aid.
In the case of adventure fundraising events, the participant usually receives a benefit as they do not pay the full cost of the trip themselves, for example they may receive free accommodation, air tickets and/or meals. The value of the benefit is the cost of the event, less any payment the participant personally makes towards the cost of the event. Where the value of the benefit exceeds the permitted level for the donation made by a person connected to the participant, Gift Aid will not be available.
Gift Aid only applies to voluntary donations of money. If your charity is organising an adventure fundraising event and is charging a participant to take part, for example by asking for a registration fee or a non-refundable deposit, the payment is not voluntary and therefore does not qualify for Gift Aid.
If a participant personally pays the full cost of taking part in the event or trip, that payment does not qualify for Gift Aid. However, any subsequent voluntary donation made by the participant or any other person will qualify, as long as all the qualifying rules of the Gift Aid scheme are met.
Sponsorship payments made by people who are connected to the participant will usually fail the donor benefit rules - where the participant receives a benefit - and so will not qualify for Gift Aid.
Sponsorship payments made by people who are 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 qualify for Gift Aid.
If the participant pays the full cost of the trip then all sponsorship paid, whether by connected persons or otherwise, can qualify for Gift Aid as there is no benefit to the participant from the sponsors' donations.
A person is 'connected to the participant' if they are:
Companies controlled by participants and persons connected with them are connected with the participant. If a participant receives a benefit in excess of the allowed limit in connection with a donation from a company they're connected with, then no relief is due for that donation. Charities should note that no Gift Aid repayment is available for company donations. Instead the company gets relief through its Corporation Tax computation.
The value of benefits must be equal to or less than the following limits:
Amount of donation
Maximum value of benefits
|£0 - £100||25% of the donation|
|£101 - £1,000||£25|
|£1,001+||Made before 6 April 2011||5% of the donation (up to a maximum of £500)|
|Made on or after 6 April 2011||5% of the donation (up to a maximum of £2,500)|
The benefit limits listed above are for Gift Aid purposes only. For VAT purposes, a donation is a voluntary payment for which no benefit is given in return. If you give a donor a benefit in return for a payment the normal VAT rules apply, and the full amount paid is consideration for a supply of goods or services. See the section below on VAT and fundraising events.
Sarah is running in this year's London marathon. She pays her own entry fee and decides to raise money for her favourite charity, so there are no benefits attached to her running the race. So all sponsorship payments that she passes to charity from her family and friends can qualify for Gift Aid. However, if Sarah applies to run the marathon through a charity and is required to pay a minimum amount of sponsorship to the charity in order to take part in the marathon, then she has received a benefit. Unless she pays the charity's costs for her to enter the marathon none of the sponsorship payments made by persons connected to her will qualify for Gift Aid.
Bill is doing a parachute jump for charity. The cost of taking part is £500. Bill pays the money himself and so he does not receive a benefit from any donations made to the charity. Bill also raises £200 from family and friends through sponsorship.
As the £500 is not a voluntary donation to the charity it does not qualify for Gift Aid. But as the sponsorship donations don't result in Bill receiving a benefit, all the £200 sponsorship money, including that from connected people, will qualify for Gift Aid.
Peter has signed up with a charity to trek along the Great Wall of China. The cost of the trip is £1,000 which includes flights, accommodation and meals. The charity is covering this cost. In return, Peter has paid the charity a non-refundable registration fee of £200, and must raise a minimum sponsorship amount of £2,500. Peter's mother is sponsoring him and makes a donation of £100 to the charity.
In return for raising £2,500 for the charity, Peter is receiving a benefit worth £800 (£1,000 less the registration fee of £200). As Peter is 'connected to the donor' (his mother), her donation of £100 will not qualify for Gift Aid - the benefit Peter receives is £800 and this exceeds the allowable benefit (£25) for a £100 donation.
Your charity should take all reasonable steps to ensure that where payments are received from people connected to a participant who has received a benefit, they are not treated as Gift Aid payments. HM Revenue & Customs (HMRC) recognises that, in practice, you can't accurately check whether a participant and their sponsors are connected.
However, HMRC does expect your charity to include an explanation to participants who will be receiving a benefit, that donations from sponsors connected to them don't qualify for Gift Aid, and include a definition of a connected person in the event literature and on the sponsorship form.
HMRC doesn't provide a sponsorship form, but does have a model sponsorship form that you can use and adapt to suit your needs. Remember to include information for participants about how Gift Aid applies to sponsorship payments and to explain the 'connected persons' rule.
Supplies made at fundraising events that you organise and promote primarily to raise money for the benefit of your charity are normally exempt from VAT, subject to certain conditions. However fundraising events that include a package of both travel and accommodation, bought-in accommodation, or more than two nights' accommodation supplied from your own resources do not qualify for the fundraising exemption. Consequently, your charity may have to account for VAT on the income.
For VAT purposes, adventure fundraising events are sometimes referred to as charity challenge events.
For more help you can contact the Charities Helpline.