Section D: Benefits received by donors

3.25 Introduction

3.25.1 Charities may wish to give a token of appreciation by way of a thank you to their donors for their donations. Modest benefits received in consequence of making a donation will not stop the donation from qualifying as a Gift Aid donation, provided their value does not exceed certain limits. If a charity wishes to provide benefits to its donors – for example, as part of a membership scheme – it should consider whether the benefits it intends to provide fall within the limits in the donor benefit rules given below. If the benefits exceed the limits, then the donation cannot qualify under the Gift Aid Scheme.

3.25.2 In order to decide whether a donation can qualify under the Gift Aid Scheme, the charity needs to determine:

  • whether the donor, or a person connected with the donor, receives any benefits in consequence of making the donation, other than of the type detailed in Section 3.27 below, which can be ignored.
  • if benefits are received, whether their value exceeds the limits in the donor benefit rules.

3.25.3 A person is connected with the donor if that person is

  • the wife or husband
  • a relative (brother, sister, ancestor (e.g. mother) or lineal descendant (e.g. grandson)
  • the wife or husband of a relative
  • a company under the control of the donor, or under control of connected persons.

3.26 What is a benefit?

3.26.1 A benefit is:

  • any item or service
  • provided by the charity or a third party
  • to the donor or a person connected with the donor
  • in consequence of making of the donation.

3.26.2 If goods or services are provided for the donor by an unconnected third party entirely unsolicited by either the charity or the donor, such goods or services will not be considered to be benefits for the purposes of these rules.

3.27 What is not a benefit?

Acknowledgements

3.27.1 A mere acknowledgement of a donor’s generosity in a charity’s literature (e.g. a theatre programme) or on a plaque etc will not amount to a benefit, provided the acknowledgement does not take the form of an advertisement for the donor’s business (as might be evidenced by the size and prominence given to the acknowledgement). The wording should be confined to thanks for the support the donor has given, together with the donor’s name, and/or their logo.
Right of admission to view heritage property or wildlife

A right of admission to view charity property

3.27.2 A right of admission to view charity property is disregarded if:

  • it is granted in return for a donation of at least 10% more than the admission charge for an equivalent right of admission
  • a donation is accepted and in return the charity grants a right of free or reduced price admission for a period of at least a year at the same times as the general public can pay for admission.

 

3.27.3 This relaxation of the donor benefit rules does not apply if the benefit extends beyond a right of admission to view charity property (e.g. a right of admission to a property to attend a concert) see detailed guidance about donations that attract a right of free entry to view charity property..

3.27.4 The relaxation does not apply if the benefit extends beyond the donor and members of his or her family.

3.27.5 HMRC recognises, however, that, in practice, charities:

  • will often want to lay down rules for the maximum number of people that a donor may bring into the charity’s premises, and
  • cannot be expected to check the identity and family relationship of people who seek admission to their premises.

HMRC will therefore accept that rules that are intended to restrict the right of admission to family groups – such as a right of admission for the donor and up to two other adults and six children – satisfies the "members of the family" test.

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3.28 The donor benefit rules

3.28.1 The donor benefit rules contain two limits for the value of the benefits that a donor, or a person connected with the donor, may receive in consequence of making a donation. If the value of the benefits received exceeds either of these limits, the donation will not qualify as a Gift Aid donation. A donation will not qualify if:

  • the value of the benefits exceeds the limits in the tables at paragraph 3.29.1 (the relevant value test), or
  • the value of the benefits plus the value of any benefits received in consequence of any Gift Aid donations made by the same donor to the same charity earlier in the same tax year exceeds £250 for donations made up to and including 05/04/2007 or £500 for donations made on or after 06/04/2007 (the aggregate value test).

3.29 The relevant value test

3.29.1 The limits for the relevant value test are:

Benefit limits for donations made up to and including 05/04/2007
Amount of donation Maximum value of benefits
£0-100
25% of the donation
£101-1,000
£25
£1,001+
2.5% of the donation

 

Benefit limits for donations made on or after 06/04/2007
Amount of donation Maximum value of benefits
£0-100
25% of the donation
£101-1,000
£25
£1,001+
5% of the donation

These limits apply separately to each donation.

3.29.2 Special rules apply to "annualise" the amount of certain donations and the value of certain benefits for the purposes of applying the limits. Broadly, in the case of subscriptions under a membership scheme, the limits normally apply by reference to the amount of the annual membership subscription and the value of the annual membership benefits. This way:

  • a charity can tell whether the benefits in its membership scheme will exceed the limit simply by looking at the annual membership subscription and the annual membership benefits
  • the result will be the same whether the donor pays the subscription in a single payment, or half-yearly, or quarterly, or monthly.

When these principles are borne in mind, the calculations for the relevant value test can be seen in context.

3.29.3 Annualising applies where a benefit:

  • consists of the right to receive benefits at intervals over a period of less than twelve months, or
  • relates to a period of less than twelve months, or
  • is one of a series of benefits received periodically in consequence of making a series of donations at intervals of less than twelve months, or
  • is a one-off benefit received in consequence of making a donation that is one of a series of donations made at intervals of less than twelve months.

3.29.4 In each of the first three categories, the amount of the donation and the value of the benefit are annualised, so that the limits in the table at paragraph 3.29.1 apply by reference to the annual amount and the annual value respectively. In the final category, the amount of the donation, but not the value of the benefit, is annualised, so that the limits in the table at paragraph 3.29.1 apply by reference to the annual amount of the donation and the actual value of the benefit.

3.29.5 Annualising is done by:

  • multiplying the amount of the donation or the value of the benefit by 365, and
  • dividing the result by
    • the number of days in the period of less than 12 months, or
    • the average number of days in the intervals of less than 12 months.

In practice, where the period or the intervals are measured in calendar months, annualising can be done by reference to calendar months, rather than days.

3.29.6 The following examples illustrate how the relevant value test works:

Example 1

Ms Smith makes four unconnected donations to a wildlife charity as follows:

 
Date
Amount
Benefits
6 May 2000
£30
nil
21 June 2000
£10
nil
18 August 2000
£25
nil
5 February 2001
£80
fashion book worth £30

As no benefits are received in consequence of making any of the first three donations, they all pass the relevant value test.

The book received in consequence of making the fourth donation does not fall into any of the categories at paragraph 3.29.3, so annualising does not apply. As the value of the book (£30) exceeds the limit of £20 (i.e. 25% of the £80 donation) the fourth donation fails the relevant value test and so cannot qualify as a Gift Aid donation.

Example 2

Mr Patel makes a single payment of £240 to a medical charity, in consequence of which he receives the right to receive 12 free monthly computer magazines worth £2.50 each. The benefit of the right to receive the magazines is therefore worth £30 (£2.50 x 12).

The right to receive the magazines does not fall into any of the categories at paragraph 3.29.3, so annualising does not apply. As the value of the right to receive the magazines (£30) exceeds the limit of £25 (i.e. the limit for donations of £100 – £1,000) the donation fails the relevant value test and so cannot qualify as a Gift Aid donation.

Example 3

Mrs O’Connor makes a single payment of £120 to the same medical charity, in consequence of which she receives the right to receive six free monthly computer magazines worth £2.50 each. The benefit of the right to receive the magazines is therefore worth £15 (£2.50 x 6).

The right to receive the magazines falls into the first category at paragraph 329.3 (a right to receive benefits at intervals over a period of less than twelve months) so annualising applies. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £240 (£120 x 12 ÷ 6) and the annual value of the right to receive the magazines £30 (£15 x 12 ÷ 6). As the annual value of the right to receive the magazines exceeds the limit of £25 (i.e. the limit for donations of £100 – £1,000) the donation fails the relevant value test and so cannot qualify as a Gift Aid donation.

Example 4

Mr Green makes a single payment of £120 to a performing arts charity, in consequence of which he receives the right to a five per cent discount on theatre tickets purchased in the next six months. The benefit of the right to the discount is worth, say, £15.

The right to the discount falls into the second category at paragraph 3.29.3 (a benefit relating to a period of less than 12 months) so annualising applies. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £240 (£120 x 12 ÷ 6) and the annual value of the right to the discount £30 (£15 x 12 ÷ 6). As the annual value of the right to the discount exceeds the limit of £25 (i.e. the limit for donations of £100 – £1,000) the donation fails the relevant value test and so cannot qualify as a Gift Aid donation.

Example 5

Miss Tomkins makes monthly payments of £20 to a medical charity under an open-ended standing order, in consequence of which she receives a free monthly computer magazine worth £2.50.

The right to receive the magazines falls into the third category at paragraph 3.29.3 (a benefit which is one of a series of benefits received in consequence of making a series of donations at intervals of less than twelve months) so annualising applies. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £240 (£20 x 12 ÷ 1) and the annual value of the right to receive the magazines £30 (£2.20 x 12 ÷ 1). As the annual value of the right to receive the magazines exceeds the limit of £25 (i.e. the limit for donations of £100 – £1,000) the donation fails the relevant value test and so cannot qualify as a Gift Aid donation.

Example 6

Mr Wong makes monthly payments of £2 to a charity under an open-ended standing order. In consequence of starting the payments he receives a one-off benefit of a free pen worth £5.

The pen falls into the fourth category at paragraph 3.29.3 (a one-off benefit received in consequence of making a donation which is one of a series of donations made at intervals of less than twelve months) so annualising applies to the donation, but not the benefit. The limits in the table at paragraph 3.29.1 therefore apply by reference to the annual amount of the donation £24 (£2 x 12 ÷ 1) and the actual value of the pen £5. As the value of the pen does not exceed the limit of £6 (i.e. 25% of the £24 annual donation) the donation passes the relevant value test and so can qualify as a Gift Aid donation.

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3.30 The aggregate value test

3.30.1 In addition to satisfying the relevant value test, the value of the benefits received in consequence of a donation must also satisfy the aggregate value test if the donation is to qualify as a Gift Aid donation. In other words:

  • the value of the benefits received in consequence of making the donation
  • plus the value of any benefits received in consequence of any Gift Aid donations by the same donor to the same charity earlier in the same tax year
  • must not exceed £250 - for donations made up to and including 05/04/2007 or £500 for donations made on or after 06/04/2007.

The value of benefits is not annualised for the purposes of the aggregate value test. It is the actual value, as opposed to an annual value, of the benefits that counts.

3.30.2 For example, suppose in example 1 in paragraph 3.29.6 above Ms Smith makes two further donations to the charity in the tax year 2007-2008 as follows:

 
Date
Amount
Benefits
11 March 2001
£9,600
weekend break worth £ 450
4 April 2001
£4,000
dinner for two worth £90

As the value of the weekend break does not exceed the limit of £480 (i.e. 5% of the £9,600 donation) the fifth donation passes the relevant value test. Furthermore, it passes the aggregate value test (it is not aggregated with the benefit worth £30 received in consequence of the fourth donation, because that donation did not qualify as a Gift Aid donation).

As the value of the dinner for two does not exceed the limit of £200 (i.e. 5% of the £4,000 donation) the sixth donation passes the relevant value test. However, it fails the aggregate value test, because the value of the dinner for two plus the value of the weekend break exceeds £500. (£450 + £90 = £540). Therefore, the sixth donation cannot qualify as a Gift Aid donation. The other five donations are unaffected.

3.31 Valuing donor benefits

3.31.1 The valuation of donor benefits can be difficult. The starting point should be to look at the value of the benefits made available. Where the item or service, or a comparable item or service, is sold to the public (whether by the charity or someone else) on arm’s length terms (for example, a ticket to attend a performance by a charitable opera society), the value of the benefit will generally be the sale price to the public. Where the value of the benefit is less immediately obvious, the charity will need to determine how much someone dealing with it at arm’s length would be prepared to pay for the benefit. Evidence might be obtained from similar transactions in the commercial sector.

3.31.2 The value to be arrived at is the value to the recipient. Consideration in the form of a third party discount or benefit may cost the charity nothing to provide but will still be of value to the recipient.

3.31.3 Where a benefit takes the form of attendance at an event that is not open to the public (so that there is no ticket price) the benefit should be valued by reference to the cost to the charity of staging the event and the number of people in attendance.

3.31.4 Where a benefit is given in return for a life membership subscription the value of all benefits that will be received over the lifetime of the membership must be estimated when valuing the benefit. For practical purposes the benefits received over the first 10 years of membership will be taken as the benefits received over the life of the member when deciding whether the benefit limits have been breached.

3.31.5 Where the benefit takes the form of, for example, a discount on purchases from a museum shop, the valuation needs to take account of factors such as the take-up of the discount by the average donor.

3.32 Provision of literature

3.32.1 Where a charity sends literature to its donors, HMRC will accept that the value is nil provided the material is produced for the purpose of describing the work of the charity. The material must be relevant to and distributed in furtherance of the objects of the charity. The fact that the literature has a cover price and is also is on sale to members of the public is not relevant. This means that literature like newsletters, bulletins, annual reports, journals, members’ handbooks and programmes of events will generally carry no value for the purposes of the donor benefit rules.

3.34 Split payments

3.34.1 Where the value of benefits would exceed the limits in the donor benefit rules, the donor may specify that part of his or her payment is to be treated as payment for the benefits and part is to be treated as a donation. This treatment can only apply where the item has a readily ascertainable value and the excess has a clear donative purpose. Provided the donor specifies this before, or at the time of making the donation, the part of the payment that is specified as a donation may qualify as a Gift Aid donation, provided it satisfies all the conditions for the tax relief. The charity and donor should keep evidence of how the payment was to be split – a copy of a dated letter accompanying the payment, for example. Alternatively, separate payments could be made.

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3.35 Donations to support missionaries and other full-time workers for a charitable cause

3.35.1 Gift Aid only applies to unfettered gifts to a charity for its charitable purposes. Donors earmarking money for the support of relatives are, in principle, no different from those generally making payments to support other relatives, for whatever reason. These are not tax relieved. Once a Gift Aid payment has been received it is for the charity to show that its income has been applied for charitable purposes only. Gifts given on condition, rather than hope or expectation, that they will be used to feed and clothe a relative are likely to breach the benefits rules for Gift Aid.

3.35.2 HMRC takes the view that donations to cover the costs incurred by a charity such as a missionary society in supporting the relative of the donor, as a missionary, can qualify under the Gift Aid scheme provided the missionary society is not merely channelling a donation to the donor’s relative. Where, for example, a missionary society says to its workers "It costs us £10,000 a year to support you while you carry out your charitable work. We look to you to raise at least this amount of funds for the society through donations from family, etc" the donations may qualify under the Gift Aid scheme. Where, on the other hand, a missionary society says to its missionaries "It is up to you to support yourself while you carry out your charitable work, with the help of your family, etc. If your family wish to send you money they can do so via the Society" payments will not qualify under the Gift Aid scheme.

3.35.3 This situation equally applies where a church, for example, supports the charitable work of a Christian worker. The Christian worker is unlikely to be in the employment of the Church and so the onus in demonstrating that payments made to particular individuals are unfettered and only applied for charitable purposes falls to the trustees of the church.