Section F: particular situations

• 3.42. Introduction
• 3.43. Educational school trips
• 3.44. Church collections
• 3.45. Educational trusts
• 3.46. Membership subscriptions
• 3.47 Adventure fundraising events: sponsorship payments and Gift Aid
• 3.48 Claiming Gift Aid on donations that attract a right of admission to view charity property
• 3.49. Charity auctions
• 3.50 Voluntary workers' expenses
• 3.51 Claiming Gift aid when goods are sold by, and the proceeds donated to, charities
• 3.52 Charity events

3.42. Introduction

HMRC Charities are occasionally approached on Gift Aid issues where possibly a number of charities might be affected by the decision we arrive at. The purpose of this section is to alert charities to HM Revenue & Customs view of particular situations involving the use or proposed use of the Gift Aid scheme.

3.43 Educational school trips

3.43.1

HM Revenue & Customs Charities received approaches from schools and PTA’s enquiring if Gift Aid could be used in respect of voluntary contributions toward educational school trips.

3.43.2

The following text has been passed to the Department of Education and is to be included in advice issued by the department to schools.

In schools, other than independent schools, the education provided wholly or mainly during school hours is free. This means that head teachers may not impose a charge on parents for any visit that is undertaken as part of the National Curriculum and occurs during school hours. The head teacher may, however, ask for a voluntary contribution.

Parents must be made aware that the contribution is not compulsory, and the children of parents who do not contribute may not be discriminated against. It is permissible for the school to ask parents to contribute more than the minimum amount in order to subsidise those pupils whose parents have not contributed. However, if there are not enough voluntary contributions and the shortfall cannot be made up, the visit may have to be cancelled.

Gift Aid

Voluntary parental contributions to charitable schools or charities associated with LEA schools to assist schools to send pupils on educational school trips in school time may be eligible for tax relief under the Gift Aid scheme, provided the usual requirements of the scheme are satisfied and in particular:

• Parental contributions are made on the basis that they are not refundable (and are not in any event refunded) if the trip does not go ahead or if their child does not go on the trip
• Any benefit arising from the school trip does not exceed the maximum level of permissible benefit for the donation.

For a donation of £0 - £100 the value of the benefits must not exceed 25% of the donation. For a donation of £101 - £1000 the value of the benefits must not exceed £25.

Benefits include travel costs, trip insurance, cost of entry and associated educational material, cost of food and drink supplied and any other costs associated with the trip (costs averaged per pupil if appropriate).
In general, however, it is likely that the benefits associated with a school trip contribution will exceed the maximum level of permissible benefits and so the donation will not come within the Gift Aid scheme.

Example 1

The cost of an educational trip to a local museum amounts to £8 (transport £5 entry £2 and brochure £1). The school asks for a voluntary contribution of £10. The payment of £10 cannot be made under the Gift aid scheme as the benefit of £8 exceeds the 25% limit (80%).

However, provided the requested contribution is not less than the benefits, any payment in excess of the requested contribution can be Gift Aided.

Example 2

The position is the same as in example 1 but a parent makes a voluntary contribution of £15 instead of the requested £10. The additional £5 can be made as a Gift Aid payment.

HM Revenue & Customs web site

General information about the tax reliefs and exemptions available to charities is available by visiting Detailed guidance notes for Charities

Top

3.44 Church collections

3.44.1

We are frequently asked if collections made for a particular charity by churches (which are themselves charities) can fall within the churches' Gift Aid scheme. This will depend on the particular circumstances.

3.44.2

If the church has not exercised any discretion in collecting the donations and the donations are merely given to the church to pass on to a particular charity then:

• the church has no entitlement to the donations (and they do not form part of the church’s income);
• the church is merely acting as a conduit and it is the charity that is the donee; and
• the charity must claim any Gift Aid tax relief (subject to the normal requirements, Gift Aid declaration and audit trail).

3.44.3

However, if the church exercises its discretion and decides to open a fund for donations to a particular charity, then:

• the fund is a designated fund of the church;
• the church is the donee and the donations form part of the church’s income; and
• the church is able to claim and Gift Aid tax relief (subject to the normal requirements).

3.44.4

We are also frequently asked if the tax reclaimed as well as the net Gift Aid donation should be passed to the charity by the church. It is our view that a church would be legally obliged to pass the tax associated with a Gift Aid payment to the charity. The donor would have made his donation in expectation that both the Gift Aid donation and the associated Gift Aid tax would go to the charity for which the collection was made.

3.45 Educational trusts

3.45.1 HM Revenue & Customs has been approached by a number of educational trusts ("Trusts") for clarification of the position of parents and persons connected to them making Gift Aid payments to such trusts.

3.45.2

A Trust is established to provide education for children as an alternative to State education. Parents may pay for textbooks, exercise books, exam fees and consumable materials. However, they are often not required to pay any set fees to cover the costs of tuition and other overheads, but instead may make payments described as donations.

3.45.3

The payment of fees to a charity is not a gift to charity and so fees paid to a Trust are not eligible for the Gift Aid scheme. Whether non-fee payments ("donations") made by parents (and persons connected to them) to a Trust qualify as Gift Aid payments depends upon the surrounding circumstances and the situation for each Trust is judged on its own merits.

3.45.4

There is a cost in providing education for a child and if that cost is met in consequence of the Gift Aid payments being made to the Trust then that cost is a benefit for the purposes of the Gift Aid scheme. This includes the cost of tuition, heating and lighting of premises and other administrative costs, which would be taken into account by a private school in setting fees.

Whether or not a benefit is received “in consequence of” the Gift Aid payments is a question of fact to be determined in the light of the surrounding circumstances. In particular, we need to consider whether the Trust would be able to meet the costs of providing the education in the absence of the donations.

In considering whether the level of fees is sufficient to cover operating costs we accept that trusts should be allowed to take account of reliable, ongoing income sources such as endowments, but not one-off or periodic donations where no binding commitment exists.

3.45.5

As far as alternative sources of funding are concerned, we take the view that these are relevant only in as much as they form part of all the circumstances we or a court might look at in deciding whether the overall funding structure was genuinely able to maintain the activities of the charitable trust to the extent that additional contributions from individuals receiving a benefit were unnecessary.

3.45.6

Where the trust has a genuine fee structure in place the Inland Revenue will accept that the benefit of receiving education arises from payment of the fees. Consequently, the receipt of education would not be received as a consequence of making donations over and above the fees and so those donations could qualify for Gift Aid. We would regard a genuine fee structure as being where fees are charged in respect of all students and the fees are set at such a level that enables the Trust to operate without needing additional support.

3.45.7

Where there is no fee structure or only nominal fees are charged, insufficient to enable the trust to operate without additional donations we do not accept that the additional donations give rise to no benefit. Such consequential benefits will generally be in excess of the benefit limits for donations made by parents and persons connected to them and so the donations will usually fail as Gift Aid payments.

3.45.8

Where there is no fee structure or only nominal fees are charged, but sufficient alternative, unconnected, funding sources can be clearly identified, we will accept that there will be no benefit arising as a consequence of donations from persons connected with the children receiving education. In situations where this is clearly the case, providing the other Gift Aid criteria are met, Gift Aid relief might be available on those donations.

3.46 Membership subscriptions

3.46.1

We have been asked how charities that used the Deed of Covenant scheme for membership subscriptions are affected by the changes introduced in 2000, which brought these Deeds into Gift Aid. Charities have expressed concern that these payments that were allowed under Deed of Covenant are not gifts and so are not eligible for Gift Aid.

3.46.2

Historically, many charities had used the Deed of Covenant scheme to allow supporters to pay their membership subscriptions in a tax-effective way. As long as any benefits provided to the members were minimal this was acceptable, as there was no requirement for covenanted payments to be gifts.

3.46.3

There is a statutory requirement, under Gift Aid, for payments to be gifts. This means that payments that are made to acquire goods or services are not eligible for Gift Aid. However, there are rules within the Gift Aid legislation that allow charities to provide donors with token benefits, within specified limits, in recognition of their gifts.

3.46.4

Strictly, membership subscriptions are not gifts, they are made to gain access to the facilities and services provided by the charity. However, we are prepared to treat membership subscriptions paid to charities as if they were gifts if they meet the conditions below. These payments will, of course, still have to satisfy the benefit rules referred to above.

3.46.5

The conditions referred to are:

• that the payments do no more than secure membership of the charity
• that the payments do not secure a right to personal use of any facilities or services provided by the charity

3.46.6

The provision to members of, for example, periodic newsletters explaining the work of the charity, or opportunities to visit and view the work of the charity would not breach these conditions. So, a wildlife conservation charity that allowed members admission to its sites to view its conservation work would not be regarded as providing services or facilities for personal use.

3.46.7

Similarly, the opportunity to take part in activities by which the charity carried out its charitable objectives would be acceptable as long as the activities did not amount to making personal use of facilities. So, a youth organisation that provided various activities in furtherance of its broader educational objectives would not be regarded as providing services or facilities for personal use.

3.46.8

Membership subscriptions that secure the right to personal use of facilities or services would not be accepted as gifts. So, for example, subscriptions that are made in order to obtain for an individual or individuals’ tuition, coaching or other educational instruction would not be viewed as gifts. Similarly, subscriptions to a sports charity would not be acceptable if they secured for members the free or discounted use of, say, a golf course or a swimming pool that are not available on similar terms to non-members.

3.46.9

Where a charity separates that part of the membership subscription that simply gives the basic rights of membership from any part that relates to the provision of services or facilities the membership element can be treated as a gift. So, for example, a sports charity that charges a basic membership subscription, with additional, variable, training or playing charges depending on the member’s standard, could regard the basic membership as a gift. The additional training or playing charges could not be treated as gifts. A charity that charges a standard membership fee that covers membership and participation could not treat the subscription as a gift if participation in the activities involved personal use of services or facilities.

Family membership

3.46.10

Many organisations offer family membership arrangements that give all the rights of individual membership, but at a reduced cost. Where a charity offers family membership we would regard the subscription as a gift to the charity provided the subscription:

• secures membership for the donor; and
• satisfies the conditions above.

3.46.11

The fact that the subscription gives members of the donor’s family rights of membership too does not change this as the payment is, primarily, a gift from the donor to the charity. The donor must, however, be the person who has given a Gift Aid declaration to the charity.

Paying other people’s subscriptions

3.46.12

We do not accept that payments made to a charity to secure individual membership rights for a person other than the donor are gifts to the charity (including individual membership for a family member not secured as part of a family membership scheme). This is because although the payment is made to the charity the gift is to the person whose membership subscription is being paid. This does not extend to payments made in respect of minor children. So, a payment that satisfies the conditions to be treated as a gift if made in respect of the donor personally will be accepted as a gift if it is made for their minor child.

3.47 Adventure fundraising events: sponsorship payments and Gift Aid

3.47.1

Some charities organise adventure challenge events, frequently overseas treks and bike rides, ("Events") to raise funds. For example, cycling in Cuba, rafting the Grand Canyon or trekking in China. While overseas events are common the same principles apply to similar events in the UK.

3.47.2

Participants are asked to pay a non-refundable deposit/registration fee (say, £200) and to raise sponsorship of a minimum set amount (say, £2,500) in return for going on the Event.

3.47.3

The charity pays a third party to arrange the Event (say, £1200). The payment covers all a participant’s costs, (travel, insurance, provision of specialist equipment (bike, raft etc), food, accommodation etc).

Gift Aid

3.47.4

Sponsorship payments are eligible for the Gift Aid scheme provided all the normal requirements of the scheme are satisfied and that includes the benefit rules.

3.47.5

In most instances a participant will receives a benefit equal to the cost of the event, less any payment he/she personally makes towards the cost of the event (including any deposit/registration fee payable). Where the value of the benefit exceeds the permitted levels Gift Aid will not be available.

Participant

3.47.6

Any deposit/registration fee paid by a participant will not be a donation to the charity and so cannot be a Gift Aid payment. Any donation made by the participant may also fail the benefit rules and cannot be Gift Aided (See 3.47.9 below).

Sponsors who are connected persons

3.47.7

Sponsorship payments made by persons connected * to the participant also, usually, fail the donor benefit rules (where the participant receives a benefit) and so will not qualify for Gift Aid.

Sponsors who are not connected persons

3.47.8

Sponsorship payments made by persons 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 can be Gift Aided.

The participant pays the full cost of the event.

3.47.9

If a participant pays the charity the full advertised cost of the event from his own resources, the value of the benefit of participating is reduced to nil. The benefit rules still apply but in this instance the value of the benefit will be nil.

3.47.10

In the example above the benefit, which would arise is the full cost of the trip as advertised by the charity - £1,200 (i.e. £200 deposit/registration fee plus £1,000 for
the balance of the trip). If the participant pays the charity £1,200 he will reduce that benefit to nil. None of this payment will be a gift to the charity so none of the £1,200 can be a Gift Aid payment.

3.47.11

If the participant reduces the benefit to nil by paying the full cost of the trip then all sponsorship paid, whether by connected persons or otherwise, can be Gift Aided.

Charity requirements

3.47.12

Charities should take all reasonable steps to ensure that Gift Aid payments are not received from persons connected to a participant. We recognise that, in practice, a charity cannot be expected to check whether a participant and their sponsors are connected persons. We would, however, expect a participating charity to include in the Event literature and on the sponsorship form:

• an explanation that sponsors connected to a participant cannot make their donations by Gift Aid; and
• the definition of a "connected person".

Notes

* 'connected person'

A person is connected with a 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.

3.48 Gift Aid on donations that attract a right of free admission to charity property

3.48 Introduction to ‘Gift Aid Admissions’ rules

3.48.1

The following guidance is intended to cover the most common situations encountered by charities offering donors the right of admission to view charity property. Charities are advised to contact HMRC Charities for advice before implementing any novel arrangements which are not covered by this guidance.

3.48.2

Donations to charity may qualify for Gift Aid, providing the donor receives no more than minimal benefits in consequence of a donation. However, from 6 April 2006 there is a relaxation to the benefit rules for charities which allow visitors access to view charity property.

3.48.3

If, in consequence of a donation, a charity allows a donor the benefit of a right of admission to view charity property, then providing certain conditions are met, the value of that benefit may be disregarded and the donation may qualify for Gift Aid.

3.48.4

For the benefit of any right of admission received in consequence of a donation to be disregarded (so that the donation can be considered for Gift Aid), the following conditions must be satisfied:

Either

• a donation is made and in return the charity grants a right of admission to the donor, or the donor and his family, for a period of at least a year, at the same times at which the general public can obtain admission, or;
• a donation is made of at least 10% more than the cost of admission to the general public and in return the charity grants an equivalent right of admission to the donor, or the donor and his family.

3.48.5

The opportunity to make a gift and to receive a right of admission in consequence must always be available to the public. This means that the right of admission to view charity property must not be made conditional upon the donor making a Gift Aid declaration.

The annual right of admission option

3.48.6

This option applies where, in return for a donation, a charity grants a right of admission to view charity property for a period of at least one year, at all times that members of the public can gain admission. Charities can opt to:

• accept a donation and allow free admission for all visits during the period covered (but the charity can specify up to five days when the right of free admission does not apply). A visitor who chooses to make a donation but does not complete a Gift Aid declaration must also be able to gain free admission on the same terms, or;
• accept a donation and grant a right of admission on payment of a reduced fee, which must apply for the first and all subsequent visits during the period covered. In this scenario only the initial donation will qualify for Gift Aid. The first and subsequent admission fees are not donations but are payments of a charge for admission to view the property. A visitor who chooses to make a donation but does not complete a gift aid declaration must also be able to gain the same reduced rate admission on the same terms for their first and all subsequent visits.

3.48.7

A charity granting annual admission in return for a donation must apply one or the other of these scenarios rather than a mixture of the two i.e. the same free or reduced rate admission must be applied for the first and all subsequent visits.

Example:

• A twelve month admission scheme where a donation, equal to the cost of a day admission, secures one free visit and repeat visits at reduced rates does not succeed because it mixes free and reduced price admission.

3.48.8

HMRC regards such schemes as an attempt to secure gift aid on a payment for day admission without applying the required 10% uplift, and will disallow Gift Aid claims in these circumstances.

3.48.9

Charities are free to decide what minimum level of donation they will accept before granting a right of admission for a year or more (so for example can choose to allow annual admission for a donation equal to the daily admission charge), but must always give an equivalent right of admission to all donors including those who do not make a Gift Aid declaration i.e. the right of admission must not be made conditional upon the donor making a Gift Aid declaration. For further guidance see paragraph 3.48.5

3.48.10

Charities do not have to be open all year or every day to grant a right of admission for a period of a year or more. Gift Aid can apply as long as the right of admission is available to donors at all times when the property is open for viewing by members of the public. Charities may, however, specify up to five days per year when the donors’ free or reduced rate right of admission will not apply. For further guidance see paragraph 3.48.25

The ‘admission charge plus 10%’ option

3.48.11

This option applies where a member of the public could purchase a right of admission, but instead chooses to make a gift that is at least 10% more than the admission charge, and in return for that donation the charity grants the equivalent admission to view charity property. The whole amount received from a donor is treated as a donation for Gift Aid purposes, not just the additional 10%.

3.48.12

Many charities use this option for daily admissions, but in fact any period of admission less than 12 months can be included within this option as long as members of the public could purchase an equivalent right of admission.

Example:

• A charity may sell a summer season ticket for a period of three months for £30; if the same right of admission is granted to an individual donating an additional 10% (i.e. paying £33 in total), the whole £33 can qualify for Gift Aid.

3.48.13

For payments to qualify for Gift Aid, each visitor must be made aware at the time he is asked for payment that he can choose to pay the admission charge or make a voluntary donation of 10% more than the admission charge and receive the same right of admission. If the visitor is denied the right to choose to pay the standard admission charge, then payment of the extra 10% is not a freely given gift and cannot be a qualifying donation. Charities must clearly advertise their normal admission charges and make it absolutely clear to all visitors that they will be admitted upon payment of the lower admission charge if they choose not to make an additional 10% voluntary donation.

Qualifying charities and rights of admission

3.48.14

The right of admission must be granted by the charity for the purpose of viewing property preserved, maintained, kept or created by a charity in pursuit of its charitable purposes.

Property is not restricted to land and/or buildings. It also includes:

• artefacts
• works of art (but not performances)
• plants
• animals
• scientific property.

This list is not exhaustive but clearly expands upon property of heritage and wildlife charities which enjoyed an earlier relaxation of the benefits rules.

Property preserved, maintained, kept or created

3.48.15

The property being viewed does not necessarily have to be preserved, maintained etc. by the particular charity granting a right of admission but must be preserved, kept etc. by a charity, with similar objects to the charity making the admission charge.

Example:

• A national child welfare charity - CWC - has a permanent exhibition at its headquarters, illustrating the value of toys and games as elements of a healthy childhood.
• The toys on display belong to a Museum of childhood (MOC), which is a charity with similar objects to CWC
• The charity (CWC) is therefore admitting visitors to view property kept, maintained etc by a charity -MOC

Joint admission arrangements

3.48.16

Gift Aid can apply to donations which give the donor a right of admission to the property of more than one charity. The visitor who chooses to make a donation must, however, know which charity or charities are sharing his donation, and in what proportions. There are two general scenarios possible:

• Where one charity manages the whole venue, and has a separate contractual arrangement with the other charities for providing that management service, any visitor choosing to make a donation will make it to the managing charity and the Gift Aid declaration need only specify that charity.
• Where each charity administers its own site but there are joint admission arrangements allowing for a split of the admission charge or donation between the charities then the visitor must be made aware, if he chooses to make a donation, of the amount of the donation ‘per charity’. This must be clearly specified at the time of the donation. The Gift Aid declaration must also reflect this correctly.

Example 1:

• A joint admission ticket allows access to three different charity properties, specifying that the admission charge of £15.00 is allocated in equal proportions i.e. £5.00 to each of the three charities offering admission to their property.
• If a donor makes an additional voluntary contribution of £1.50 (10% of £15.00) each charity could claim Gift Aid on £5.50; we will accept a joint declaration which specifies the names of each charity and shows that the donor is aware of the allocation when he makes his donation.

Example 2:

• Two charities together offer a qualifying right of annual admission to their properties in return for a donation of £100 to be allocated between them in the proportion 70:30.
• The charities could claim Gift Aid on £70 and £30 respectively; we will accept a joint declaration which specifies the names of each charity and shows that the donor is aware of the allocation when he makes his donation.

3.48.17

In these circumstances care must be taken regarding the format of the Gift Aid declaration, and charities considering this type of joint admission arrangement can contact HMRC Charities for assistance.

Mixed Sites

3.48.18

Charities must also be very careful when they consider offering multiple admissions to a mixture of charity and non-charity properties. The right of entry to a non-charity property may have to be considered as a benefit received in consequence of the donation (unless it is clearly priced and paid for separately).

Charities in this position should contact HMRC Charities for guidance about specific scenarios or proposals.

Reciprocal arrangements with other charities

3.48.19

Gift Aid can apply to qualifying donations which grant a right of admission to the property of more than one charity as long as there is an equivalent right of admission granted to donors who opt not to make a Gift Aid declaration.

Example

• Two zoos in different parts of the country may have a reciprocal arrangement to allow donors annual admission to the other’s property.
• As long as each is a charity the benefit of admission to each site can be disregarded under this arrangement
• There is no additional benefit as donors receive a disregarded right of admission to each zoo

Charities displaying loaned items or non-charity property

3.48.20

Charities may also display property that does not belong to them, borrowing it from other charities or from private owners, public bodies etc.

3.48.21

A distinction has to be drawn between admission to view a charity's property, which may have been merely supplemented by items borrowed from others, including non-charities, and the display of other property - simply being displayed on a charity's premises.

• If the borrowed property and/or its preservation etc. is within the
  defined objects of the charity we will regard it as being "kept" by the charity and Gift Aid can apply subject to all other conditions being met.
• If the borrowed property and its preservation would be outside the charity's objects and it is displayed by its owners rather than by the charity i.e. the charity does not borrow the property for incorporation into its own displays, we do not regard that property as "kept" by a charity.
• If the property - not regarded as "kept" by the charity - constitutes a significant part of the attraction at a particular property, Gift Aid would probably not apply as the value of viewing non-charity property would have to be accounted for as a Gift Aid benefit.

Performances

3.48.22

Performances are specifically excluded from the category “works of art” but Gift Aid may still be available on donations made for admission to view property where performances also take place.

For example:

• donations to admit visitors to a performance of a play at a historic theatre will not qualify;
• but, the same theatre may be open at times when performances are not taking place, to allow visitors to view its architectural features.

3.48.23

If a performance is merely incidental to the viewing of a charity’s property or it can be regarded as integral to the viewing of that property it is not disqualified as a ‘performance’.

For example:

• historic re-enactments illustrative of the property’s former use;
• demonstrations of technical processes or crafts associated with the property.

Interactive experiments etc

3.48.24

Rights of admission that include interactive experiments with an educational purpose and displays of military memorabilia will also qualify as being integral to the viewing of charity property.

Restricting rights of admission for special events at charity properties

3.48.25

A charity that grants donors an annual right of free or reduced rate admission in return for qualifying donations may restrict the right of free or reduced rate admission to donors for a maximum of five days in any 12 month period when the property is otherwise open to the public. If the right of admission is restricted for more than 5 days the donation will not qualify for Gift Aid.

3.48.26

This allows charities to hold events for which the usual public admission arrangements do not apply; generally this will be events for which there is a special public admission charge such as concerts, performances of plays, firework displays, etc.

3.48.27

If a charity excludes donors from free or reduced rate admission to view the charity property when a special event is taking place, it may nonetheless admit donors for that day only, on payment of the public admission charge. The payment of the admission charge will not qualify for Gift Aid as it will be a payment to attend the event rather than to view the charity property.

Example

• A charity allows donors the right of free annual admission to view its property but donors are excluded from free entry on five days per year because events with a separate admission charge are taking place, such as a Christmas Fayre, Easter Egg Hunt, Fashion Show, etc. On those days the charity charges donors the full public admission price, which does not qualify for Gift Aid. If there were six or more such events in the year none of the donations would qualify for Gift Aid.
• If donors with the annual right of free admission were charged a reduced price for admission to a special event, the value of the discount would be taken into account as an additional benefit received in consequence of their donation; the payment of the reduced admission fee would not qualify for Gift Aid (see ‘Particular benefits – admission to special events’)

3.48.28

Special events that are held outside the times when the charity property is normally open to members of the public need not be taken into account when applying this restriction.

Example:

• A charity allows donors the right of free annual admission to view its property on weekdays only. It can exclude donors from free admission to special events, such as concerts, held on any Saturday or Sunday, but exclusion of donors from free admission on a weekday because a special event is taking place must be restricted to a maximum of five days in any 12 month period.

Provision of other benefits

3.48.29

Some charities give donors other benefits apart from the right of admission. Only the right of admission to view a charity property can be disregarded and any other benefits provided to a donor as a consequence of a donation must be valued separately and taken into account when considering whether the donation qualifies for Gift Aid. The value to be taken into account is the value to the donor not the cost to the charity. A charity may decide to provide visitors with benefits as a thank you for making an optional 10% donation; this is acceptable providing the benefits do not exceed the normal benefit rules.

Example:

• the admission charge to view a charity’s property is £20.00
• visitors making a donation of an extra 10% are granted free admission
• the full amount paid, £22.00 qualifies for Gift Aid and the charity can therefore give other benefits with a value of up to £5.50 (being 25% of £22.00)
• if the charity gives a soft toy worth £6 (the benefit to the donor is the retail value not the cost of the item to the charity) no Gift Aid can be claimed on the donation as the benefit limit is exceeded
• if the charity offers a voucher for £5.00 to spend in the restaurant, the donation will qualify for Gift Aid.

Particular benefits - admission to special events

3.48.30

If admission to a property also includes free or reduced rate entry into events that are held on the charity’s premises, and for which a separate admission charge applies, then the value of free or reduced price entry into those special events must be taken into account as an additional benefit in consequence of a donation for Gift Aid purposes. Depending on the value of the event it may mean that the donation does not qualify for Gift Aid.

Example

• A charity allows free annual admission to its estate in return for a donation. The charity holds an annual Easter egg hunt on the estate, for which there is a special public admission charge of £10. The charity allows free entry to the Easter egg hunt to donors. The additional benefit of £10 is not automatically disregarded for Gift Aid purposes but must be taken into account as an additional benefit in consequence of the donation.

Particular benefits - use of charity facilities

3.48.31

If the right of admission includes the use of charity facilities then the value of the use of those facilities must be taken into account as an additional benefit in consequence of a donation for Gift Aid purposes. Depending on the value of the use of those facilities it may mean that the donation does not qualify for Gift Aid.

Example

• A charity charges visitors to view a historic building; visitors can pay an optional additional fee to use a swimming pool housed in the building. The charity allows free annual admission to the building and swimming pool in return for a donation. The right of admission to the building is disregarded for Gift Aid purposes, but the value of the right to use the swimming pool facilities must be taken into account as an additional benefit in consequence of the donation.

If you are in doubt about how to treat a particular item, site or event at a property covered by this legislation please contact HMRC Charities with full details.

Gift Aid declarations

3.48.32

If a visitor chooses to make a donation to a charity he can also choose to make a Gift Aid declaration. The donation will not qualify for Gift Aid treatment in the charity’s hands unless an appropriate declaration is given.

3.48.33

An appropriate declaration may be made in writing or orally. It must contain the donor’s initial and surname and his home postal address (house number and postcode as a minimum). The donor must also confirm that he has paid sufficient tax to cover the amount reclaimable by the charity.

3.48.34

Where a donor makes an oral declaration, the charity must keep a record of the declaration and give the donor written confirmation of the declaration, for example on the till receipt. Further guidance on the requirements for Gift Aid and appropriate declarations.

Donors who do not make a Gift Aid declaration

3.48.35

Some visitors will choose to make a donation to the charity but will be unable to make a Gift Aid declaration as they will not be UK taxpayers; others may want to make a donation but prefer not to claim Gift Aid on their donation. These donors must receive exactly the same right of admission as donors who do make a Gift Aid declaration. This rule applies whether the charity operates the ‘annual right of admission’ option or the ‘admission charge plus 10%’ option.

3.48.36

Charities may decide to give annual right of admission to visitors who make a donation equal to, or less than, the standard daily admission charge. This is fine, but charities must be prepared to accept a donation and give the annual right of admission to any donor who chooses this option, whether or not he makes a Gift Aid declaration.

Example

• A charity owns three properties and charges £10 for daily admission to any single property. The charity chooses to offer donors the annual right of free admission to all three properties in return for a minimum donation of just £25. The benefit of admission to all three qualifying properties in return for a donation can be disregarded for the purposes of Gift Aid, providing the ‘discount’ is offered to all donors, and not only to those making a Gift Aid declaration.

Classes of admission

3.48.37

A charity may make admission available at concessionary rates for different classes of visitor e.g. pensioners, students, disabled visitors, the unwaged etc. When granting the right of entry in return for a donation of 10% more than the admission charge, the 10% extra is applied to the specific charge for each particular class of visitor.

Example:

• the standard adult admission charge to a charity property is £15, with a reduced admission charge of £10 available to pensioners.
• Mr Green is a pensioner and makes an additional voluntary donation of £1.00 (10% of £10.00); he can Gift Aid his whole donation of £11.00,
• his daughter Miss Green is not entitled to any concessions, so must make a voluntary donation of £1.50 (10% of £15.00) in order to Gift Aid her total donation of £16.50.
• If Miss Green makes a donation to secure admission for both herself and her father, the total amount she must pay to qualify for Gift Aid is £27.50

Family admission

3.48.38

The right of admission of the donor and one or more members of his/her family can be disregarded for Gift Aid purposes, whether or not that right of admission is exercised by all of the family members at the same time.

Example:

• Mr Smith makes a donation in return for which a charity grants the right of annual admission to Mr Smith, his wife and his two children. His donation will qualify for Gift Aid even if his wife and children visit the property without him, or if he visits the property alone.

3.48.39

The legislation does not provide any definition of ‘members of (his) family’. It is each charity’s responsibility to explain to visitors that in order for donations to qualify for Gift Aid, the right of admission must apply to family members only. We recommend that charities draw attention to this requirement in literature and signage. There is no expectation that the charity will make detailed identity or relationship checks on individuals. However, it is in the charity’s interests to monitor donations for ‘family admissions’, as claims for Gift Aid on unusual groups may be queried if audited.

Example

• if a visitor wishes to make a Gift Aid donation to admit a group of eight adult women (paying eight times the single admission + 10% donation), she should be told that only donations giving the right of admission to her own family members will qualify for Gift Aid. She should be asked to confirm that her seven guests are indeed members of her own family. If audited, the charity is likely to be asked to demonstrate that its procedures included this confirmation. Whilst it is not a statutory obligation, charities might decide to include this confirmation on Gift Aid declarations / till receipts.

3.48.40

Many charities offer ‘family tickets’ at special prices. Each charity can decide its own policy for what they are prepared to accept in terms of family size and familial relationships when granting such a right of admission, but this is not directly relevant to the Gift Aid provisions.

Example:

• a charity may offer a ‘family ticket’ allowing annual admission for two adults and up to three children at a reduced rate.
• If Mr & Mrs Brown have four children, Mrs Brown may claim Gift Aid on her donation for a “family ticket” obtaining a right of annual admission in accordance with the charity’s rules for a family reduction
• She can also make a Gift Aid donation for the additional child admission she obtains to take the whole family to view the property as she is merely making a second donation for one or more members of her family.

Group Admissions

3.48.41

A donor cannot make a qualifying donation in respect of payment for a group of people who are not members of his/her family, for example a group arriving as a coach party.

3.48.42

An individual can, however, collect donations from members of a group and pass them on to the charity for administrative convenience. Each member of the group who makes a donation must individually fulfil the Gift Aid conditions (so the donation could be for his personal admission, or for himself and members of his family), and each donor must complete a personal Gift Aid declaration. Any cheques must be made payable to the charity rather than the group organiser.

3.48.43

The charity must take care only to claim Gift Aid in respect of those members of the group who make qualifying donations.

VAT

3.48.44

There is no equivalent relaxation of VAT rules for payments to gain admission to view charity property.

3.48.45

The addition of an amount over and above the standard admission charge, including the voluntary 10% donation on top of an admission charge does not therefore make the entire payment a donation for VAT purposes.

3.48.46

For VAT a donation must be freely given with the donor receiving nothing in return for the donation (except a token item, which has no intrinsic value, such as a lapel sticker or poppy)

3.48.47

If a charity is VAT registered VAT at the standard rate will still have to be accounted for on the admission charge - unless the cultural exemption applies, in which case the admission charge will be exempt from VAT.

More information about the Cultural Exemption can be found in VAT notice 701/47 Culture.

3.48.48

Where a charity provides benefits as an incentive, to encourage donations in addition to the admission charge, the VAT position changes, whether or not such donations exceed 10% of the admission charge.

3.48.49

VAT becomes due on the amount paid in addition to the admission charge at the rate appropriate to the benefit provided i.e. at the zero, standard or reduced rate.

VAT - Admission charge standard-rated

3.48.50

Where a charity receives a gift aid donation which is in part subject to VAT at the standard rate, the VAT position is as follows:

• that part of the payment representing the normal admission charge is standard rated
• the additional amount is a donation and outside the scope of VAT, provided that it is truly voluntary and gives no additional benefits.

3.48.50

In these circumstances the receipt of such donations does not require a business/non-business apportionment.

VAT and vouchers

3.48.51

A charity may decide to offer vouchers as an incentive to customers who make a donation in addition to an admission charge, the vouchers are often redeemable at an outlet within the charity property. There are a number of different ways in which voucher schemes work and special VAT rules apply. One of the more common types of voucher is a “face value” voucher.

3.48.52

Face value vouchers display a monetary value and are usually sold at or below that monetary value and can be used to obtain goods and services. The provision of a voucher in return for a donation is regarded as supply in return for payment. There is no VAT on a face value vouchers when they are sold (unless they are sold for an amount greater than the face value then VAT is due on the difference).

3.48.53

However, when redeemed for goods or services these vouchers are treated as consideration (payment) for those goods or services at their full face value.

Further information can be found in VAT notice 700/7 Business promotion schemes.

VAT effect on partial exemption calculations

3.48.54

Where a charity is partially exempt, only the normal admission charge should be included in the partial exemption calculation. Any additional donation should only be included if the charity provides a gift or benefit in return for the extra amount.

3.48.55

Freely given donations, where the donor receives nothing in return (other than a token item such as a lapel badge), are excluded from the partial exemption calculation.

VAT Business/ non-business calculation

3.48.56

The receipt of donations does not in itself create a requirement to carry out a business/non-business calculation. Where a business/non-business calculation is required, dependent on the apportionment method used, the donative elements may have to be included in the calculation. Non-business activity is generally the supply of goods and services for no charge.

For basic information on how VAT affects charities click the following link to VAT Notice 701/1 Charities.

VAT Examples

3.48.57

• A VAT registered charity makes an admission charge of £10 to view charity property.
• They seek a donation of more than the £10 admission charge to help them pursue their charitable objectives.

1. The charity provides no goods or benefits in return for the additional donation:

VAT is due at 17.5% on the £10 admission charge unless the VAT Cultural Exemption applies (supply is exempt)
As no goods or benefits are given any amounts received in excess of the £10 can be treated as donations - outside the scope of VAT.

2. The charity gives a lapel sticker to visitors who make a donation:
VAT is due at 17.5% on the £10 admission charge
Because a lapel badges is merely as a token any additional amounts can be regarded as a donation and therefore outside the scope of VAT.

3. The charity gives a book about the history of the charity property to visitors who make a donation:
VAT is due at 17.5% on the £10 admission charge unless the VAT Cultural Exemption applies (supply is exempt),
As books are zero rated any amounts paid in addition to the admission charge, represent a zero-rated consideration for the book
If the customer does not receive the book either because they have paid an additional amount less than 10% of the admission charge or they choose not to take the book, the additional amount is a donation outside the scope of VAT.

4. The charity gives the customer a set of coasters picturing the charity property:
VAT is due at 17.5% on the £10 admission charge, unless the VAT Cultural Exemption applies (supply is exempt),
As the coasters are a standard rated supply any amount paid in addition to the admission charge is a standard rated consideration for the coasters and VAT will be due at 17.5% on the additional amount paid.
If the customer does not receive or accept the coasters the additional amount can be considered a donation outside the scope of VAT.

5. The charity gives the customer a token with a face value of £1 to be redeemed at one of the charity’s outlets:
VAT is due at 17.5% on the £10 admission charge, unless the VAT Cultural Exemption applies (supply is exempt),
If the customer pays an additional £1 no VAT is due on the face value of the token at this point.
VAT is accounted for when the voucher is redeemed, at the rate appropriate to the goods or services purchased. e.g. if it is used to buy a book the zero rate will apply, to buy a snack at a café the standard rate of 17.5% will apply.

If the extra amount paid by the customer is greater than the face value of the voucher (say £1.50) VAT would be due at the standard rate on £0.50 on admission and VAT on the remaining £1 is accounted for when the voucher is redeemed.
If the customer does not receive a voucher, either because they have paid an additional amount less than 10% of the admission charge or they choose not to take the voucher, the additional amount is a donation outside the scope of VAT.

3.49 Charity auctions

Donation

3.49.1

A payment for an item at a charity auction is not a gift to charity.

3.49.2

However, HM Revenue & Customs recognises that when a person purchases a lot at a charity auction they may intentionally pay more than it is worth in order to support the charity. So, on that basis, we are prepared to treat a payment for an auction item as a donation to the charity.

3.49.3

The payment will only qualify as a Gift Aid payment if the normal requirements of the Gift Aid scheme are met, and that includes satisfying the Gift Aid benefit rules.
Gift Aid benefit (valuation of an auction item)

3.49.4

For an item that is commercially available, the benefit for Gift Aid purposes is the 'shop sale' price of the item. An item must have a clear and recognisable value (market value) and be available for purchase separately by an individual.

3.49.5

For a commercially available item that has had its value enhanced, for example because it has been owned by a celebrity, the market value (and hence the benefit for Gift Aid purposes) will not be the original price of the item but the amount it fetches in the auction.

3.49.7

For an item not commercially available, its value is the auction price paid by the purchaser. So the benefit for Gift Aid purposes is the 'auction' price paid.

Buying the Gift Aid benefit (split payment)

3.49.8

Where the value of the benefits exceed the limits in the donor benefit rules, the donor can treat part of his/her payment as buying the benefits and part (the excess) as a donation.

A Gift Aid benefit can only be purchased if:

• the benefit can be purchased separately; and
• the donor is aware of the value of the benefit at the time he makes his donation.

3.49.9 For auction items, this treatment only applies where:

• the item is commercially available; and
• the donor is aware, at the time he/she makes a successful bid that the item could be purchased separately and for what price.

Example 1

charity auctions a football (a wooden train for illustration 5 below) that is on sale in a well known store for £10.

Gift Aid benefit: The football is commercially available for £10, so the Gift Aid benefit is £10. The benefit is £10 whether:

• the charity buys the ball from the store;
• the store donates the ball to the charity; or
• An individual purchases the ball from the store and donates it to the charity.

1. An individual successfully bids £40 for the ball

The benefit is £10 and, as the benefit is 25% of the price paid of £40, the whole of the £40 is eligible as a Gift Aid payment.

2. An individual successfully bids £30 for the ball but the charity did not tell bidders at the start of the auction that it could be bought locally for £10

The benefit is £10 and, as the benefit is 33% of the price paid of £30, the Gift Aid benefit limit is exceeded. So none of the £30 paid is eligible as a Gift Aid payment (the donor cannot buy the benefit).

3. An individual successfully bids £30 for the ball and the charity told bidders at the start of the auction that it could be bought locally for £10

The benefit is £10 and, as the benefit is 33% of the price paid of £30, the Gift Aid benefit limit is exceeded. However, the donor can buy the benefit and so £20 is eligible as a Gift Aid payment (£30 paid less the bought benefit of £10).

4. The ball is signed by the local football team and sold for £100 (although the price paid is not relevant to the treatment described below)

The nature of the ball has changed by its being signed by the local football team. The signed ball is not the item on sale in the store and its value for Gift Aid benefit purposes is the auction price paid of £100. The benefit is 100% (£100 donation, £100 benefit) and so none of the £100 paid is eligible for the Gift Aid scheme.

5. An individual makes a wooden train that is similar to one on sale at a local store and it is bought at auction for £50

The train is not on sale in the store (and is not commercially available) and so its value for Gift Aid benefit purposes is the auction price paid of £50. The benefit is 100% (£50 donation, £50 benefit) and so none of the £50 paid is eligible for the Gift Aid scheme.

Example 2

Often a charity (mainly churches) will hold an auction of 'promises'. These are tasks that individuals have promised to carry out for successful bidders. For example:

• Wash and polish a car
• Cut the grass
• Prepare and serve a meal
• Make available a holiday cottage for the weekend
• Baby sit for an evening

These are all items offered by the general public and are not usually (see exception below) on general sale. Similar items/services may be available commercially but not those offered as promises.

The value of a promise for Gift Aid benefit purposes is the auction price paid. The benefit will always be 100% of the donation and so none of the auction price paid to purchase a promise is eligible for the Gift Aid scheme.

Exception

Occasionally a promise offered is commercially available. For example:

• a cottage may be generally available for letting even though owned by a member of the public. If the promise is to make available the cottage for a weekend and the rent charged is usually £100 (and there is evidence available in support) then the Gift Aid benefit is £100 and the rules apply as in example 1.
• a local garage may agree to supply a free 'wash and polish' for which they charge £10. The Gift Aid benefit is £10 and the rules apply as in example 1.

Example 3

Charities sometimes receive items owned or used by celebrities for auction. Such items have an enhanced value over and above their purchase price and bids to secure such items cannot be Gift Aided. For example:

A famous pop music star gives a pair of her shoes for a charity auction. These shoes normally retail for £150. Mr Webster purchases the shoes with a bid of £10,000. Although the shoes retail for £150, because a celebrity has owned them, their value has been considerably enhanced and the £10,000 paid represents their market value. The benefit received is £10,000, 100% of the payment. Consequently the £10,000 cannot be paid under Gift Aid.

3.50 Voluntary workers' expenses

3.50.1

Voluntary workers sometimes incur expenditure when assisting charities to carry out their work (for example, travel costs, postal or photocopying charges, etc.). Provided the expenses are reasonable and proper, a charity can reimburse a volunteer for the expenses incurred. Often a volunteer will forgo the expenses to which he/she is entitled.

We are often asked by charities if they can claim Gift Aid on the expenses forgone by their volunteers.

3.50.2

One of the requirements of the Gift Aid scheme is that the gift by a donor to a charity "takes the form of a payment of a sum of money". So a Gift Aid payment to a charity cannot be made by book entries following a waiver of expenses.

3.50.3

The charity must physically pay the expenses to the volunteer. The volunteer is then free to keep the money or pay part or all of it back to the charity as a Gift Aid payment. If he gives all of the expenses paid to him back to the charity, he is not returning the expenses but making a payment of an equivalent amount.

3.50.4

The charity will need, as normal, a Gift Aid declaration and an audit trail to bring the payment into the Gift Aid scheme. The payment will also need to meet the usual requirements of the Gift Aid scheme (benefit rules etc.).

3.50.5

For audit purposes, it is preferable that at least one of the payments by the charity or the volunteer is made by cheque.

Taxation implications for the volunteer

3.50.6

Before a payment made to volunteer worker can be charged to tax as Employment Income there must be:

• either an office or an employment; and
• earnings from that office or employment.

3.50.7

A person who does voluntary unpaid work for a charity will not normally be engaged under a contract of employment and will not normally be the holder of an office. If there is no office or employment, it follows that the reimbursement of any expenses incurred by voluntary workers in doing the work of the charity will not give rise to liability to tax. Similarly, voluntary workers who are otherwise unpaid are not liable to tax on the reimbursement of the extra cost they might incur because they undertake such work, for example, the expenses of travel between home and the place where the work is done.

3.50.8

If expenses are paid which do more than reimburse the costs incurred, or are at scale rates which cannot reasonably be regarded as merely a reimbursement of what they spend, the voluntary workers may be receiving remuneration for their services. In that case, the payments will be taxable as Employment Income if it can be shown that they hold an office or employment. If they do not hold an office or employment, the payments may be chargeable as a miscellaneous receipt under Case VI of Schedule D.

3.50.9

If there is doubt about the tax treatment of expenses payments to volunteers, the tax office responsible for considering the matter is:

• For payments made to volunteers who have a contract of employment or are holders of an office, the tax office that is responsible for operating the PAYE scheme for the charity
• Otherwise, the tax office responsible for the volunteer's own tax affairs.

Approved mileage allowances

3.50.10

Expenses payments to volunteers within the rates of the approved mileage allowance payments scheme as published by HM Revenue & Customs will not be taxable. The rates are available by visiting the Approved mileage rates page.

3.51 Claiming Gift Aid when goods are sold by, and the proceeds gifted to, charities

Background

3.51.1

Gift Aid can only be applied to gifts of money, so if a supporter gives goods to a charity Gift Aid cannot apply. There is, however, a way in which Gift Aid can be utilised by charities or Community Amateur Sports Clubs (CASCS) to maximise their income from the sale of supporters’ goods.

3.51.2

References to charity or charities throughout should be taken to include CASCs unless otherwise stated.

3.51.3

The charity can offer to sell goods on behalf of supporters, and then ask the supporters if they would like to choose to give all or part of those sale proceeds to the charity as a donation. Any free will donation of the proceeds can be treated as a Gift Aid donation, subject to all other Gift Aid conditions being satisfied.

Trading (charity v subsidiary)

3.51.4

Charities considering adopting this type of arrangement are welcome to contact HMRC Charities to discuss their proposals before implementation.

3.51.5

For examples of areas where this approach is being utilised please refer to paragraph 3.51.30

3.51.6 The minimum legal requirements for donated proceeds to qualify for Gift Aid are:

• The supporter retains legal and beneficial ownership of the goods until they are sold.
• The supporter and the charity both understand that the charity (or its trading subsidiary) is acting as the supporter’s agent to sell his goods.
• The donor is informed that he can keep the sale proceeds or choose to donate all or part of those proceeds to charity.
• The donor makes a valid Gift Aid declaration which covers the proceeds he chooses to donate to the charity.

Considerations for the charity

The supporter’s opportunity to make a donation

3.51.6

Once the item has been sold the individual must be told how much it was sold for and be given the opportunity to choose whether to keep all or part of the proceeds or donate all or part of those proceeds to the charity. This ensures not only that any donation is entirely voluntary but also protects the charity from any allegations of inappropriate practice if the goods are sold for more than expected.

3.51.7

After the goods are sold the charity should ask the supporter to formally confirm that they want to donate the sale proceeds to the charity. Alternatively the charity can send details of the sale proceeds to the supporter and explain that in accordance with the individual’s earlier instructions they intend to treat the whole amount as a gift to the charity unless the individual advises them otherwise. Supporters must be allowed a reasonable period to respond; to allow for postal delays this should be at least 21 days. If this option is adopted the charity must explain the process to the donor before the goods are sold, and/or in any written agreement.

3.51.8

Charities will need to carefully consider how they will handle requests from individuals who want to keep the proceeds but don’t notify them until after the specified time period has expired. Charities should make their position clear in advance, in any written agreement and in instructions for staff or volunteers.

Gift Aid declarations

3.51.9

To simplify the process the charity may want to obtain a Gift Aid declaration from the individual before the goods are sold i.e. when the supporter leaves the goods with the charity and enters into the agency sale agreement. This is acceptable as long as the declaration does not commit the supporter to make a particular donation. A Gift Aid declaration that refers to - “any donations that I make from dd/mm/yy” - would be appropriate, you can use the wording from our model Gift Aid declaration.

Gift Aid Claims

3.51.10

No Gift Aid claim can be made by the charity until the earlier of:

• Receipt of formal confirmation from the donor that they have chosen to donate the sale proceeds;
• the end of the agreed default period.

Until then no donation has been made or received and the money, although held by the charity, still belongs to the supporter.

Record Keeping for Gift Aid

3.51.11

For audit purposes, in addition to keeping the donor’s Gift Aid declaration, the charity must retain all documentation associated with claims for Gift Aid on the proceeds from the sale of goods on behalf of donors:

• A copy of any written agreement with the individual under which the charity (or its subsidiary) is appointed as the donor’s agent to sell goods on his behalf.
• Documentation to show that the supporter has been notified of the sale proceeds and that he has been given the opportunity to receive all or part of the proceeds. This is essential so that the donor can complete his own tax return correctly.
• If appropriate, documentation from the supporter confirming his donation to the charity.
• Internal accounting records to show how the goods are identified as belonging to a particular supporter
• If the arrangements are made by a trading subsidiary of a charity, records to show how the sale proceeds are remitted to the charity.
  

3.51.12

Charities are also advised to maintain records of staff/volunteer training and guidance, to demonstrate that all their staff and volunteers are implementing the process correctly.

Sale of goods in return for a commission

3.51.13

There are a number of options open to the charity or its trading subsidiary, which may involve the charging of a commission fee for the service being provided. These could include

• A commission charged in relation to the sale proceeds realised
• A set rate of commission per item
• A commission is charged, which is waived if the sale proceeds are donated to charity

3.51.14

Any commission received by the charity or its trading subsidiary company will be a trading receipt and potentially subject to corporation tax. For guidance about trading by charities see Trading and business activities.

Any commission paid to the charity by the supporter is not eligible for Gift Aid, as it is a payment made under the terms of a contract, not a gift.

Involving commercial operators

3.51.15

Some charities may want to engage commercial operators to sell the assets on behalf of the individual, who then donates the proceeds to the charity. In such arrangements the commercial operator may charge a commission, which is deducted from the sale proceeds. The consequences of such an arrangement are the same as in scenario 6 above. As long as the individual is under no obligation to give the proceeds to the charity Gift Aid will be available on any amounts that he does give. The commercial operator will almost certainly be VAT registered and so will have to charge VAT on the commission. If the goods are sold by a commercial operator care must be taken to ensure that donations are made to the charity and any Gift Aid declaration must name that charity.

Other related points to consider

3.51.16

Where charities sell donated goods which they own, the activity is not normally treated as trading and so any profits are not taxable. However, if they are providing a service in return for payment, (in this instance selling goods on behalf of others in return for a commission), that service may itself amount to a taxable trading activity. If no commission is charged the charity will not be in a trading position.

3.51.17

However, regardless of whether a commission is charged, all direct and indirect costs incurred in selling these goods will be non-charitable expenditure, and may affect the charity’s entitlement to tax exemption. This will be a departure from the current practice for many charities used to selling only donated goods, which is not treated as a trading activity and does not normally involve non-charitable expenditure. There are also implications for VAT registered charities, guidance is available at paragraph 3.51.21

3.51.18

Obvious costs related to the sale of goods may include advertising expenses and insurance cover for valuable goods but charities also need to be aware that a share of any overheads relating to the sale of the goods also needs to be accounted for as non-charitable expenditure.

Example

• A charity begins to sell goods on behalf of supporters, from a shop which previously sold only donated goods owned by the charity.
• When selling donated goods only there was no trading position and all overheads were acceptable as charitable expenditure (realising the value of a gift)
• A proportion of those overheads will now relate to the non-charitable activity of selling goods on behalf of supporters
• The overheads must be apportioned between the two activities by the most appropriate method e.g. floor-space devoted to non-charity sales or proportion of turnover etc.

3.51.19

To be acceptable under charity law the trustees will also need to be aware that they are required to demonstrate that the likely proceeds of such activities are reasonably expected to exceed costs. Charities should also consider their position in advance of implementing this process should they be duped into selling stolen goods, or goods on behalf of another trader.

Some possible scenarios

3.51.20

Because of these issues charities may consider that the use of a trading subsidiary company is more appropriate for these activities. The use of a subsidiary company avoids the charity incurring non-charitable expenditure or putting charitable funds at risk. The subsidiary can then pass its profits to the charity as a tax deductible donation, to eliminate any corporation tax liability on the profits.

VAT

3.51.21

This guidance assumes that the owner of the goods to be sold is a private individual. There are no VAT reliefs available to CASCs so VAT guidance applies only to charities.

3.51.22

A simple gift of goods to a charity by a private individual will have no VAT implications for the donor or the charity. The sale of donated goods by a charity (or by a trading subsidiary that donates its profits to the charity) is zero rated supply for VAT purposes, so any input tax suffered by a VAT registered charity can be offset against these supplies.

3.51.23

If a charity or its subsidiary makes a charge for a service, that service is a taxable supply and VAT at the appropriate rate must be charged by the charity if it is VAT registered. Thus the charity or subsidiary will be liable to charge VAT on any sales commission.

3.51.24

If a charity or subsidiary performs a service without making a charge, that is a non-business transaction and therefore outside the scope of VAT. So the charity or subsidiary will not be able to claim back the input VAT on either the direct costs of providing the service or on any associated overheads. Guidance about how to treat these costs is available a V1-6 Business non-business.

Considerations for the supporter

3.51.25

Each Supporter must be aware that:

• where the charity is selling valuable goods on his behalf any liability to capital gains tax is still his responsibility.
• The amount of his Gift Aid donation is the net proceeds (after any sales commission) which he agrees the charity may keep.
• If he sells significant quantities of goods in this way he must also consider his own position in terms of income tax on trading activities.
• In the unlikely event of a purchaser seeking recompense in relation to goods purchased, this will be the supporter’s responsibility rather than the charity’s.

Capital Gains tax

3.51.26

When an individual disposes of assets a charge to Capital Gains Tax (CGT) can arise, depending on the nature of the asset and how much it is sold for or worth. Where an asset is a chattel (tangible moveable property) worth less than £6,000 any gain is not chargeable to CGT. Further guidance on this can be found at CGT1 . This guidance assumes that all the situations described involve assets that are exempt from CGT.

3.51.27

Where a donor is aware that a particular asset will give rise to a capital gains charge when it is sold he may want to consider whether it is more beneficial for him, to gift the asset directly to the charity instead. If he does this he can avoid a capital gains charge. The charity will not be able to claim Gift Aid on his donation but the sale of the same asset by a charity will not be chargeable to capital gains tax as long as the gain is applicable or applied for charitable purposes.

A practical approach

3.51.28

In practice charities or their trading subsidiaries wishing to arrange sales of goods on behalf of supporters will most often enter into a written agreement with the supporter which:

• explains the arrangements to the supporter
• makes it clear to the supporter that they have the option of keeping the proceeds when they are notified of the completed sale.
• establishes the charity as an agent to sell the items on behalf of the supporter;
• itemises the goods to be sold and which goods are accepted as donated goods
• obtains an open Gift Aid declaration from the supporter when he leaves the item with the charity;

3.51.29

Where there is no written agreement, all staff and volunteers who receive goods must be able to explain the nature of the arrangements and the consequences for the supporter.

Possible scenarios

3.51.30

The following illustrations demonstrate the application of these general principles in practical scenarios.

1. Charity Shop - offers to sell any goods valued at over £50.

• A supporter asks a charity to sell a painting on his behalf; he believes it to be worth about £100.
• It is made clear that the individual is under no obligation to pass the proceeds to the charity and no commission will be charged.
• The painting is eventually sold for £250
• The donor is told what the sale proceeds are and is given the choice to keep the proceeds or make a donation to the charity
• He chooses to donate £100 and keep the balance of £150.
• Any expenses incurred on the sale of the painting will be non charitable expenditure
• The supporter was not asked to complete a Gift Aid declaration so the charity cannot claim Gift Aid on this donation

2. Charity Shop - offers to sell all saleable goods

• A supporter brings a bag of bric-a-brac and clothes to a high street shop run by a trading subsidiary of a charity, and agrees that the charity can sell all the goods on her behalf,
• she completes a Gift Aid declaration naming the charity represented by the shop
• The shop staff list all the saleable goods and the suggested prices
• As each item is sold the actual sale proceeds are noted on the list (the charity links particular goods to the supporter via a unique code on the price tag)
• At the end of the month/quarter the supporter is advised of the sale proceeds to date and asked to contact the shop’s head office within 21 days if she wants to keep the proceeds
• The supporter does not reply and the proceeds are deemed to be a donation to the charity
• The subsidiary 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

3. Goods intended for re-cycling

• A charity makes an envelope available for recycling printer cartridges; the envelope incorporates a Gift Aid declaration
• The envelope also incorporates an opportunity for the supporter to indicate whether he wants to keep the proceeds or donate his proceeds to the named charity (tick box).
• The donor knows in advance that each cartridge will realise proceeds of £1 from a recycling company
• Because he knows exactly how much he could receive from the recycling company he chooses in advance to donate the proceeds to the charity
• He completes the Gift Aid declaration, ticks the “donate” box and sends the filled envelope to the recycling company
• The recycling company passes £1 per cartridge to the charity along with the Gift Aid declaration and the charity makes a Gift aid claim.

4. Charity auction accounts

• The XYZ charity maintains a database containing details of all its supporters who have already completed a Gift Aid declaration, including a unique reference number for each supporter.
• XYZ charity writes to these supporters to promote the use of their on line auction account, which is run by a subsidiary XYZ ltd
• A supporter arranges for goods to be sold on his behalf on the on-line auction site, advising XYZ ltd of his charity reference number as supplied by XYZ charity.
• When the goods are sold the supporter is advised that the proceeds are £3500 and that commission of 1% will be deducted
• The supporter chooses to donate 2/3 of the net proceeds to XYZ charity
• XYZ ltd passes £1155 to him and deposits £2310 in XYZ charity’s account
• At the end of the month XYZ ltd advises XYZ charity of the names and unique reference number of the donors contributing to that account
• XYZ charity matches the details to its Gift Aid declarations and claims Gift Aid on those donations covered by valid declarations

3.51.31

The following examples show several variations on the same basic scenario to illustrate how small changes in the way a charity arranges its procedures can create very different outcomes for tax and VAT.

Example 1

• An individual makes a gift of a painting worth £100 to a charity.
• The charity now owns the painting and sells it for £100.
• The donor cannot make the gift of the painting using Gift Aid, as he has not given money.
• The charity cannot claim a Gift Aid repayment but will be exempt from tax on the sale of the painting.

Example 2

• An individual sells a painting for £100
• He donates the money to charity.
• The gift can be made using Gift Aid, if he completes a Gift Aid declaration
• The charity can claim a Gift Aid repayment on the amount donated.

Example 3

• An individual asks a charity to sell a painting worth £100 on his behalf.
• The charity agrees to sell the painting on his behalf and charges no commission on the understanding that the proceeds of the sale will be donated to the charity.
• The proceeds of sale cannot be regarded as a donation for Gift Aid purposes because there are conditions attached to the donation.
• The proceeds of the sale must be regarded as consideration received by the charity in return for selling the painting.
• In the charity’s hands the payment may be taxable as a trading receipt.
• It may be inappropriate to conduct this trading activity within the charity, a trading subsidiary might be more appropriate.

Example 4

• An individual asks a charity to sell a painting worth £100 on his behalf.
• It is made clear that the individual is under no obligation to pass the proceeds to the charity.
• If any of the proceeds are donated to the charity the gift will be completely voluntary so Gift Aid will be available
• The charity will not trading but any expenditure incurred in selling the painting may be non-charitable expenditure, which could affect the charity’s entitlement to tax exemption.
• The trustees will need to be able to demonstrate that the likely proceeds are reasonably expected to exceed costs. Use of a subsidiary company may be more appropriate.

Example 5

• The charity agrees to sell the painting on the individual’s behalf
• It is clear that there is no obligation to give the proceeds to the charity but the charity does charge a commission for handling the sale
• Gift Aid can apply to any part of the proceeds gifted to the charity but not to the commission
• The commission will potentially be a taxable trading receipt in the charity’s hands; use of a subsidiary trading company may be advisable to limit any risk to charity assets.
• If the charity is registered for VAT it must treat the charging of commission as a taxable supply of services.

Example 6

• The charity’s subsidiary company sells the painting on the individual’s behalf and charges a commission accordingly.
• The individual is under no obligation to give any proceeds to the charity.
• Gift Aid can apply to any proceeds gifted to the charity by the individual.
• The commission received by the subsidiary company will be a trading receipt and potentially taxable.
• The subsidiary company can avoid a corporation tax charge by paying its taxable profits to the charity using company Gift Aid.
• If the company is registered for VAT the commission charged must be treated as a taxable supply.

Example 7

• The charity’s subsidiary company sells the painting on the individual’s behalf.
• The company either charges a commission, which it waives if the sale proceeds are gifted to the charity or it makes no charge on condition that the proceeds are donated.
• The proceeds paid to the charity by the individual are not eligible for Gift Aid, as they are not entirely voluntary gifts; they are payments made under the terms of a contract with the company.
• The commission received by the company will be a trading receipt and potentially subject to corporation tax but the company can pay its profits to the charity using company Gift Aid.
• If no commission is charged the company’s activity will be regarded as non-business for VAT purposes and it will not be able to deduct or claim repayment of VAT charged on costs directly incurred in selling the asset or on associated overheads.
• If commission is charged the company a VAT% registered comp[any must treat the commission as a taxable supply.

Example 8

• The charity’s subsidiary company sells the painting on the individual’s behalf.
• The company does not charge a commission and there is no obligation on the individual to give any of the proceeds to the charity.
• Any proceeds given to the charity by the individual will be eligible for Gift Aid.
• The company’s activity in selling the painting will be regarded as non-business so it will not be able to reclaim VAT on costs directly incurred or on associated overheads.

3.52 Charity events

3.52.1

Charities often hold events (dinners, concerts, firework displays, etc.) to raise funds and ask whether all or part of the payment to attend the event can be Gift Aided.

3.52.2

To be eligible for the Gift Aid scheme a payment must be a freewill gift to charity, that is, there must be no compulsion about making the payment. So the payment must be a wholly voluntary payment and not linked to attendance at the event.

3.52.3

A payment to purchase a ticket (or an admission charge) to attend a charity event is not a gift to charity but the purchase of a right to attend the event. Without buying a ticket you cannot attend the event, so there is no freewill in making a payment - that is, you must pay the ticket price to attend the event. Such payments are not eligible for Gift Aid.

3.52.4

In the same way a payment described as 'minimum donation' or a 'donation' to attend an event is not a freewill payment. Again, you must make the payment to attend the event. The 'minimum donation' or 'specified donation' is, in fact, an admission charge.

3.52.5

The following payments to attend an event are not gifts to charity:

• Payment to purchase a ticket.
• Payment to gain admission.
• A required minimum donation.
• A required specified donation.

All of the payments described must be paid in order to attend the event and so are not freewill gifts to charity. Such payments are not eligible for the Gift Aid scheme.

Ticket price plus a suggested donation

3.52.6

A charity can charge what it likes for a ticket to attend its event. However, it should not put the charity's funds at risk and, therefore, should set the ticket price at a level to at least recover its costs.

3.52.7

A charity can, therefore, charge a set ticket price (not Gift Aidable) and, in addition, request a donation that can be Gift Aided. However, any suggested donation:

• Must not be compulsory such that it has to be paid, in addition to the set ticket price, to attend the event. That is, the payer must be able to pay only the ticket price to attend the event; and
• The payer must be aware of that at the time he makes the suggested donation (the ticket and/or event literature must make it clear).

3.52.8

As explained earlier, a payment described as a 'minimum donation' or a 'specified donation' that has to be paid in addition to the set ticket price is not a freewill gift and cannot be Gift Aided. In these circumstances, the set ticket price plus the minimum donation or the specified donation is the actual ticket price and no part of the payment made (ticket price plus minimum/specified donation) can be Gift Aided.

Examples

A charity organises a dinner dance and incurs the following costs:

Hire of venue = £1,000
Catering costs = £3,000
Orchestra/singer = £2,000
Total costs = £6,000

The proposed number of attendees is 100 and the charity wants to make (say) £4,000 on the event.

The cost per attendee is £60 (£6,000 / 100) and so the charity is looking at a set ticket price at £100.

Example 1

The charity charges £100 for each ticket.

There is no gift to charity, all the proceeds (£10,000) are from ticket sales and none qualify as Gift Aid payments.

Note: Sometimes a charity seeks to claim Gift Aid on the £4,000 (£40 per person) on the basis that the amount over and above the costs is a donation. However, the £4,000 (proceeds £10,000 less costs £6,000) is a profit and not a donation.

Example 2

The charity charges £65 per ticket and also asks for a minimum donation of £35.

To attend the dinner an attendee must pay £100 (£65 + the minimum donation of £35). You cannot attend by only paying £65.

There is no gift, the whole of the £100 is a compulsory payment to attend the dinner and no part of it is eligible for the Gift Aid scheme. Any voluntary donations over and above the compulsory £35 will be eligible for Gift Aid.

Example 3

The charity charges £80 per ticket and, in addition, asks for a suggested donation of £20. The charity makes it clear on the back of the ticket that the £20 is only a suggested donation and that attendance at the dinner can be obtained by only paying the set ticket price of £80.

The £80 paid for the ticket cannot be Gift Aided.

However, as the charity made it clear that a payment to attend the dinner was only £80 (the set cost of a ticket) then any payment made in excess of the £80 can be Gift Aided. So the suggested £20 donation or any other donation in excess of the £80 paid for a ticket can be Gift Aided.

Example 4

The charity charges £100 for each ticket. However, a benefactor pays the full cost (£6000) to the charity so that it can pay for the dinner.

For Gift Aid purposes, the situation is exactly the same as for Example 1.

Who meets or how the costs are met is not important when determining whether a payment to attend the dinner is a gift. The charge to attend the event remains at £100 even though the charity's cost are met by the benefactor. So none of the £100 payment can be Gift Aided.

Note: The benefactor has made a gift to the charity of £6,000 and so he can Gift Aid his £6,000 gift provided all the requirements of the Gift Aid scheme are satisfied. Any free tickets (£100 each) given to the benefactor are benefits for the purposes of the Gift Aid benefit limit (£150 for a £6000 donation) - so 1 free ticket valued at £100 is within the Gift Aid benefit limit.

Example 5

The charity charges £100 for each ticket. However, the venue/orchestra/caterer all waive their charges and so it costs the charity nothing to put on the dinner dance.

None of the £100 paid can be Gift Aided as it is a payment to purchase a ticket to attend the dinner.

Unlike example 4, the venue/orchestra/caterer cannot Gift Aid their contributions because they have not made any payments to charity but simply waived their fees.

Example 6

The charity decides that it will not make any charge to attend the event and will rely on expected donations to more than cover costs.

Charity trustees are obliged to take proper care of charity funds and not expose them to undue risk. Any trustees considering this kind of 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. Professional advice should be taken before embarking upon such a course. Donations received in such circumstances would be eligible for Gift Aid.