A payment to your charity will only qualify for Gift Aid if it is a voluntary donation. Where an individual successfully bids for goods or services at a charity auction, their payment for the item is not a donation and therefore not strictly a gift to charity.
However HM Revenue & Customs (HMRC) recognises that sometimes payments made for goods and services auctioned for charity will intentionally be more than their retail value. In these circumstances HMRC will treat payments as donations which will qualify for Gift Aid provided that the other rules of the scheme are met and the benefits don't exceed the limits set out below.
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For donations to qualify for Gift Aid, any benefits provided - including the value of the items auctioned - must be below 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, none of the payment to buy an item at auction can be treated as a donation. The normal VAT rules apply, and the full amount paid must be taken into account. For more information see the section below on 'VAT and charity auctions'.
If the auction lot is commercially available then that commercial value is the value of the benefit. For example if a football shirt from the local team, which is widely available in local shops for a retail price of £50, is auctioned for £75 then the value of the benefit to the bidder is £50 even though the bidder pays £75.
In certain limited circumstances the successful bidder can choose to 'buy the benefit' of the item purchased in the auction. For more information, see the next section 'Buying the benefit'.
If the goods or services are not commercially available then the value of the item auctioned is the price paid by the successful bidder. A bidder is likely to be prepared to pay more for such an item because it is unique. For example, if a football shirt that is signed by players in the local team, which can't be purchased in the local shops, is auctioned for £100, the value of the benefit to the bidder is £100.
When a benefit given to a donor would exceed the benefit limits - so Gift Aid can't be claimed - it is possible for the donor's payment to be split between an amount to 'buy' the benefit and an amount that is treated as a gift. To do this the value (cost) of the item auctioned is taken away from the amount paid, and the remainder is treated as the qualifying Gift Aid donation.
Gift Aid can only be applied to the remainder if:
For auction items, the option to buy only applies where:
Your charity should keep evidence to support the arrangement.
Claire bids for tennis lessons given by a professional tennis coach at an auction. She is told at the start of the auction that the tennis lessons can be bought commercially for £50. Claire successfully bids £100 for the lessons. In this case the benefit limit is exceeded because the value of the benefit (£50) is more than 25 per cent of the payment (£25), so the payment won't qualify for Gift Aid.
Claire decides to buy the benefit, by taking the cost of the benefit away from the total amount bid and so half the payment (£50) now qualifies for Gift Aid (£100 paid less the benefit of £50).
Find out more about providing benefits in return for donations, how to work out their value and the limits allowed by following the link below.
If the goods or services are not commercially available then the value of the item auctioned is the price paid by the successful bidder. Often, charity auction lots are unique and as the successful bid represents the value of that lot to the bidder, that amount paid is the value placed on the benefit. As the value of the benefit is 100 per cent of the amount paid, the payment will not qualify for Gift Aid. This generally applies when a charity holds an auction of 'promises', which are services that supporters have promised to carry out for successful bidders. For example a charity might auction 'promises' by supporters to:
These are items offered by the general public and are not usually available to buy. The value of a 'promise' for Gift Aid benefit purposes is the winning amount paid in the auction. The value of the benefit will always be 100 per cent of the donation, so none of the price paid qualifies for Gift Aid.
Occasionally a 'promise' may be commercially available, for example if a local garage supplies a 'wash and polish' to the auction winner, for which they usually charge a retail price of £10. The value of the benefit is then £10 and the winning bidder may 'buy the benefit' providing they were told the value of the benefit at the start of the auction.
The maximum benefit allowed in each situation below is £25 (£100 @ 25%)
Is item commercially available
Price at auction
Does payment qualify for Gift Aid?
|A book||Yes||£10||£100||£10||Yes - the benefit value is less than 25% of the donation|
|A book signed by a celebrity||Yes, but enhanced||£10 + enhancement||£100||£100||No - the benefit value is the value of the donation|
|A handbag donated by a celebrity||Yes||N/A||£100||£100||No - the benefit value is the value of the donation|
|Tennis lessons by a professional tennis coach||Yes||£50||£100||£50||No - the benefit value is more than 25% of the donation*|
|Dinner with a celebrity||No||N/A||£100||£100||No - the benefit value is the value of the donation|
* In this example, the bidder could buy the benefit as long as the charity told them at the start of the auction that the tennis lessons could be bought commercially for £50. See example above.
A donation is a voluntary payment for which no benefit is given in return. Donations are outside the scope of VAT.
For VAT purposes, no part of the amount that an individual pays to buy something at auction can be treated as a donation. The normal VAT rules apply and the full amount paid is taken into account for VAT, regardless of the commercial value of the item in question. You may therefore have to pay VAT on this income.
The income from the sales you make by auction must be taken into account when considering whether you should be registered for VAT. If you are VAT-registered, VAT will normally be due on the full amount paid for any standard-rated goods or services that you sell. However, sales of goods which have been donated to your charity for you to sell may qualify for VAT zero-rating. This VAT relief does not apply to donated services, for example if a decorator donated a week's decorating services at a 'promises auction'.
If the auction is held as part of a fundraising event the income may be exempt from VAT under the fundraising exemption. If so, your zero-rated sales can remain zero-rated even when sold at a qualifying event.
For more help you can contact the Charities Helpline.