In this section:
Your charity or Community Amateur Sports Club (CASC) may raise funds by selling donated goods such as clothes. This may be a regular activity carried out at a shop or market stall, or it may be an occasional activity carried out at a jumble sale or auction. Donations of goods for sale in this way do not qualify for Gift Aid. Gift Aid only applies to gifts of money.
However your charity can offer to act as an agent for its supporters, and sell goods on their behalf in the hope that the owner chooses to donate the sale proceeds. Any donation of the sale proceeds could then qualify for Gift Aid.
This type of arrangement is often called 'Retail Gift Aid'. If your charity is thinking about using this type of arrangement for the first time, it is recommended that you contact HM Revenue & Customs (HMRC) Charities to discuss your plans before you implement them.
On this page:
In order for any eventual donation of sale proceeds by the owner to qualify for Gift Aid, your charity or CASC must be acting as an agent, selling goods on their behalf. The following rules must apply:
It's a good idea to ask the owner to complete a Gift Aid declaration before the sale (when they leave their goods with you, in anticipation of the proceeds being donated to you) - however the wording of the declaration mustn't commit them to making a donation.
HMRC recommends that charities or their trading subsidiaries selling goods on behalf of supporters should explain all of the arrangements in writing to the supporter. Where there is no written agreement, all staff and volunteers must be able to explain the nature of the arrangements, how Gift Aid applies, and the consequences for the supporter.
After the goods are sold you must write to the supporter to confirm that they want to donate all or part of the sale proceeds to your charity or CASC.
Alternatively you can write to tell the supporter how much the sale proceeds were and explain that you intend to treat the whole amount as a gift to the charity unless they contact you within 21 days to say they want to keep the proceeds.
You must then give them at least 21 days to respond to this letter before you treat the proceeds as a donation to your charity. If you want to use this option, you must clearly explain the process to the donor before the goods are sold.
Emma brings a bag of clothes to a shop run by a trading subsidiary of a charity, and agrees that they can sell all the goods on her behalf. She completes a Gift Aid declaration naming the charity represented by the shop. The shop assistant explains the process and tells Emma that she is under no obligation to donate the sale proceeds. They also make a list of all the saleable goods and the suggested prices and as each item is sold the actual sale value is noted on the list (the shop links particular goods to the supporter via a unique code on the price tag).
At the end of the month, the shop writes to Emma to tell her the value of the sales to date and asks her to contact the shop's head office within 21 days if she wants to keep any of the sale proceeds.
Emma is happy to donate all the proceeds to date to the charity - there is no need for her to write back because at the end of the 21 day period the shop can assume that she is donating the proceeds. After the 21 day default period, the subsidiary company passes the donation to the charity which includes that sum in its Gift Aid claim. The process is repeated each month until all of the listed goods are sold.
It's a good idea to ask the owner to complete a Gift Aid declaration before the sale (when they leave their goods with you, in anticipation of the proceeds being donated to you). However the wording of the declaration mustn't commit the owner to making a donation.
For audit purposes, your charity or CASC must keep a record of the proceeds of the sale being offered to the donor along with their decision to donate them to you.
This could include:
Use the Gift Aid model declaration form
Find out more about Gift Aid declarations
Find out more about Gift Aid record keeping and audit requirements
Even in situations where your charity or CASC can reclaim Gift Aid, you may have other tax obligations.
Your charity or CASC may be liable to pay tax on the profits of any trading activity. However, the sale of donated goods by a charity or CASC is generally not regarded as a trade for tax purposes, and the profits won't be liable to Corporation Tax or Income Tax.
If goods are sold on behalf of a third party (the potential donor) in return for a commission, your charity or CASC is providing a service in return for payment. That service is a taxable trading activity and any profit is potentially liable to Corporation Tax or Income Tax.
Any commission paid to your charity or CASC by the owner doesn’t qualify for Gift Aid, as it is a payment in return for services, not a gift.
Find out more about paying tax on the profits of trading activity
All costs incurred in selling goods, for example advertising costs or insurance cover for valuable goods - including any share in overheads - is considered to be a non-charitable expenditure, and may affect your charity or CASC's entitlement to tax exemption.
Your charity or CASC may want to consider using a subsidiary company to act as the selling agent so that charitable funds are not put at risk. If the subsidiary company makes any profits it can pass these to your charity or CASC and claim a deduction against its taxable profits.
Mary asks a charity to sell some jewellery worth £100 on her behalf. The charity explains the process and tells Mary that she is under no obligation to donate the sale proceeds. The jewellery sells for £250, the charity notifies Mary of the proceeds and she decides to donate all of the money to the charity. As this is a voluntary donation it qualifies for Gift Aid.
Although the charity is not technically trading, it spends £30 on advertising. As this is classed as non-charitable expenditure, it could affect the charity's entitlement to tax exemption as a subsidiary company wasn't used.
The trustees will need to be able to demonstrate that the likely overall proceeds (Gift Aid donations) are reasonably expected to exceed costs.
Tax and non-charitable expenditure - find out more
Tax implications of using a trading subsidiary company - find out more
Claiming Corporation Tax relief on company gifts to charity
If you sell goods on behalf of somebody else and you don't charge them a commission you are not carrying out a business activity for VAT purposes (as you are doing something for no charge). This means that you can't recover any VAT you are charged on your costs, including overheads, relating to this activity of selling goods on behalf of others.
If you do charge a commission for selling the goods, you are carrying out a business activity and this commission income will need to be taken into account when considering whether you are liable to be registered for VAT.
Even if you are not paid in money - for example, you may instead receive some goods or services in return for selling the goods for the individual - this may still be a business activity on your part.
If you are VAT-registered you will have to account for VAT on your commission charges. You will, however, be able to recover any VAT you are charged on costs relating to the sales of the goods on behalf of others, subject to the normal VAT rules.
John asks a charity to sell a painting on his behalf and completes a Gift Aid declaration. John is told that there is no obligation to give the proceeds to the charity but the charity does charge a 5 per cent commission for handling the sale. The painting sells for £1,050. John tells the charity to take the commission of £50 out of the proceeds and keep the balance as a donation. The charity can claim Gift Aid on £1,000 but not the £50 commission fee.
As the charity is registered for VAT it must account for VAT on the commission fee as it is a charge for a taxable supply of services.
Find out more about charging VAT on income and what you can reclaim on costs
The income generated from the sale of goods by your charity or CASC may have tax implications for the owner. You must make potential donors aware that:
You should also make potential donors aware that if they sell assets in this way, a charge to Capital Gains Tax can arise, depending on the nature of the asset and how much it is sold for. Any liability to Capital Gains Tax is still their responsibility.
The owner may want to consider whether it is more beneficial for them to give a valuable asset directly to your charity or CASC instead - as they will not be charged Capital Gains Tax on any chargeable gains on gifts of assets to charities or CASCs. In this case your charity or CASC will not be able to claim Gift Aid on their donation - as Gift Aid only applies to gifts of money and not assets, but any gain on the sale of this asset by you will be exempt from Capital Gains Tax as long as the gain is applied for charitable purposes.
For more help you can contact the Charities Helpline. Select option 6 for Gift Aid.
Contact the Charities Helpline
Read more about selling goods on behalf of individuals in the detailed guidance notes
