Helen Elliott5 November 2015

Gift Aid and VAT - what should you know to maximise your income?

• Gift Aid basics• Fundraising events• Challenge events• Corporate support• Membership• HMRC audits

Agenda

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Gift Aid – two typesType Charity can

recover Gift Aid?

Applies to Examples

Corporate Gift Aid

No UK corporation tax payers

Companies AssociationsSocieties

Individual Gift Aid

Yes, if conditions met

UK income & capital gains tax payers

IndividualsSole tradersPartnershipsLLPsPrivate trusts

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Corporate Gift Aid1. No Gift Aid to be reclaimed by

charity2. Works purely as a tax relief for

company3. Company deducts Gift Aid from profit

to reduce tax charge4. No need for a declaration5. But other Gift Aid conditions apply

(monetary gift, donor benefit rules, anti-avoidance rules)

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Individual Gift Aid - how it works

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£100 net

pay

£125

gross pay

+Gift Aid

declaration

£25 basic

rate tax (20%) £25

basic rate tax

At a 20% basic rate of tax, the

Gift Aid is 25% of the gift value

£100 gift

Charity

• Extra tax relief for higher rate taxpayers

• For £100 donation• Equivalent to £125 gross • 40% taxpayer paid £50 tax on the donation • (£125 x 40%)• Charity gets 20% back – i.e. £25• Donor gets tax relief of £25• Cost of donation to donor was £100 - £25 = £75

Higher rate relief

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Cash

Cheques

Direct debit/SO

Credit/debit card

Any currency

What counts as a donation?

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×In-kind donations

×Donations of goods

×Purchases of goods or services

(e.g. jumble sale, school

fees)

×Raffle or lottery tickets

×Donations already with tax

relief (e.g. charity vouchers

or payroll giving)

• Name of charity

• Name and home address of donor

• Identifies gifts to be Gift Aided (e.g. the enclosed gift and all future gifts)

• Request to treat as Gift Aid (e.g. please Gift Aid..)

• Date, if open ended declaration

• Tax to cover statement

• (New) responsibility to cover shortfall of tax

Written Gift Aid declaration

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I confirm I have paid or will pay an amount of Income

Tax and/or Capital Gains Tax for the current tax year (6

April to 5 April) that is at least equal to the amount of

tax that all the charities and Community Amateur

Sports Clubs (CASCs) that I donate to will reclaim on

my gifts for the current tax year. I understand that

other taxes such as VAT and Council Tax do not qualify.

I understand the charity will reclaim 25p of tax on

every £1 that I have given.

Existing tax declaration

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Applicable from 6 April 2016 for new declarations:

Boost your donation by 25p of Gift Aid for every £1 you donation. Gift Aid

is reclaimed by the charity from the tax you pay for the current tax year.

Your address is needed to identify you as a current UK taxpayer

I want to Gift Aid my donation of £……. to…………. (Name of charity).

I am a UK taxpayer and understand that if I pay less income tax and/or

Capital Gains tax in a tax year than the amount of Gift Aid claimed on all

of my donations in that tax year it is my responsibility to pay any

difference.

Title/First Name/Surname/Home Address/Postcode/Date

New tax declaration

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Prior to June 2015: HMRC accepted one partner could complete a declaration for the whole partnership using the partnership business address

June 2015 – 5 April 2016: the declaration must contain the names and home addresses of each partner

From 6 April 2016: each partner must complete their own declaration

Partnership declarations

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• Any item or service provided• To the donor or a connected person• In consequence of making the donation• By the charity • Or a third party (unless unconnected

third party provides benefits unsolicited by either charity or donor)

Benefits

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Connected personsA person is connected to participant if they are:

• The participant

• Wife, husband, civil partner

• Brother or sister

• Parent, grandparent

• Child, grandchild

• Married to a connected person

• Company under control of above

• Business partners 13

Donation Benefit allowed

Up to £100 25% of the donation

£100-£1,000 £25

Over £1,000 5% of the donation

Overall limit £2,500

Gift Aid benefit rules

The government is currently considering simplifying these rules

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• Charity literature e.g. annual reports, newsletters

• Acknowledgements, not adverts for donor’s

business. Naming a building OK but not business

name

• Right of admission to view charity property – special

rules

• Priority booking rights

• Stickers, pins, badges etc – must be of negligible

value

Disregarded benefits for Gift Aid

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But note that most of these are NOT ignored for VAT purposes

• Donor specifies £x to pay for benefit and £y donation before or at time of donation

• Works if £x market value can be established

• Gift Aid then available on £y donation

• Keep written evidence of split e.g. letter from donor

Split payments

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• Referred to as Retail Gift Aid Scheme (‘RGAS’)

• Charity must act as agent of donor in selling goods.

Donor must sign agency agreement and complete

Gift Aid declaration

• When goods sold, donor must be given choice to

keep proceeds or donate. Must use HMRC template

wording. If no reply within 21 days charity can

assume to be Gift Aided

• Care needed if any commission is charged – trading

income, vatable and loss of rates relief

Gift Aid – sale of donated goods

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• Standard method

• Method A – for charity run shops. Donor agrees

charity does not need to notify until proceeds go

above £100

• Method B – for trading co run shops. Donor agrees

trading co does not need to notify until proceeds go

above £1,000

Donor must also be able to opt for end of year

summary statement

Gift Aid – sale of donated goods

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• No need for charity to pay incorrect Gift Aid

• But adjust future claims if told not taxpayer

• Train shop staff on correct procedures and keep

evidence

• No bonus scheme or monetary reward re RGAS – can

only use targets etc for monitoring

• Carry out regular audits/checks to ensure processes

correctly followed and keep evidence

• HMRC template letters are compulsory (email or

post)

Retail Gift Aid – new rules from HMRC

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• If exceed A/B level write in year or at year end by 31

May, and end of year summary by 31 May

• If commission must cover “the real costs” of scheme

• Customers to be told selling some goods as agent

e.g. notice in shop window

• Must allocate unique code or number to each donor

and use on label attached to their goods

• Keep records of GAD, agency agreement, all corresp,

transfers to/from charity/sub, staff training and

internal checks

Retail Gift Aid – new rules from HMRC

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• From 6 April 2013

• Up to £5,000 of small donations – max £1,250

• Small donation is up to £20 each – in cash (coins,

notes, not cheques or credit/debit cards)

• No need for declarations

• No benefits except lapel stickers and the like

• Good history of Gift Aid claims – complicated rules

In 2013/14 raised £7m

From 6 April 2016 cap raised to £8,000 from £5,000

Gift Aid Small Donations Scheme

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Fundraising events exemption

• Clear fundraising purpose and promoted as such• Up to 15 events of the same type in same location per year• Includes a wide range of events• 2 nights or fewer• Small-scale events do not count

• Should not exceed £1,000 per week in takings

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• Profits are not taxable• No VAT on admission fees or

registration charges

BUT also• No recovery of VAT on purchases

• Budget for all costs to include VAT cost• Decreases overall VAT recovery for whole charity

Exemption means

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• Only events organised by charities or their wholly-owned subsidiaries qualify as fundraising events

• Company or individual may be organising and donating the net proceeds to charity

• Who is taking the risk? Think about:• liabilities• insurance

Who is organising event?

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• Generally qualify for exemption

• Registration fees then exempt

• Sponsorship raised exempt

• Eligible for Gift Aid

Marathons and similar

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• Not a charity fundraising event• registration fees + minimum level of

sponsorship = entry price > subject to VAT

• Do not set a minimum level of sponsorship• invite participants to achieve a target or pledge

• Charge VAT on registration fee • Recover all VAT on costs

London Marathon

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• No exemption for fundraising events that include:• a package of bought in travel and accommodation or

• bought-in accommodation or• more than two nights’ accommodation from a

charity’s own resources

• Donation, agent or principal?

Challenge events

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• Travel company or tour organiser taking the risk and organising the event so that charity does not have financial risk

• Name of the tour organiser on event information and tickets etc.

• Contract between charity and tour organiser specifies that the charity will be acting as agent

Charity acting as agent

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• Charity buys in travel, accommodation from supplier – price = cost

• Charity is taking a financial risk• Registration fee + minimum

sponsorship = fee to take part = selling price

• Amounts received over minimum may be donations

Charity as principal

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• TOMS = Tour Operators’ Margin Scheme

• Margin will be charged • at zero rate VAT if event takes place outside EU• at standard rate if in EU (inclusive basis)

TOMS applies

Selling price Cost- = Margin

• VAT on overheads will be recoverable, but not on direct costs

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• Clear agreements – agent or principal

• Will be able to recover VAT on advertising and other overheads

• Get agreement from VAT office if necessary

Challenge events - tips

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• Need a declaration from each individual donor

• Use forms on HMRC website• Beware level of benefits – will disregard

small stuff e.g. T-shirt• Where benefits more substantial,

donations from connected persons are not eligible for Gift Aid

Sponsored events – Gift Aid

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• Companies may make donations – outside the scope of VAT

• “Sponsorship” = sale of advertising or promotional services – vatable

• May split income between donation and sponsorship – must be in advance

• Fundraising events exemption covers all income include corporate sponsorship

Corporate support

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Cause-related marketing

• Company is using the charity’s logo• Charity needs to charge a fee – licensing use of logo and brand• Commercial participation arrangements e.g. £10 for every holiday booked or % of the takings

• May still be a donation• Make sure you have an agreement

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Gifts in kind

• Companies may donate goods• trading stock - article manufactured or sold in the course of the trade• equipment used in the course of the trade

• Relief given through corporation tax return• Employees may be seconded – still include as normal trading expense

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Why membership?

membership

voting rightsmagazine

feeling of belonging

free goods/ services

news about the charity

fundraisingdiscounts

building awareness

members’ website area

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• A donation?

• Payment for benefits?

• A mixture of both?

Is your membership subscription…

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• Donation or part donation? Gift Aid

• Benefits? subscription may be partly vatable

zero rate and/or standard rate

Tax and VAT implications

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If membership has no benefits or only benefits are:• Voting rights• Annual report• Newsletter • Minimal benefitsHMRC will normally accept it is a donation and can therefore be Gift Aided

Membership and Gift Aid

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• Member specifies £x to pay for benefit at market value and £y donation before or at time of payment

• Works if £x market value can be established

• Gift Aid then available on £y donation

• Keep written evidence of split e.g. membership application leaflet

• May want to agree split with HMRC

Subscription with some benefits

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Membership subscription

• Donation as aboveor

• If benefits provided for subscription, then it could be subject to VAT

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Membership benefitsExempt:• Membership of professional body• Discount on a training course (if

exempt)• Entry or discount on entry to cultural

event or site (if exempt)• Entry to sports facilities

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Membership benefitsZero rated:• Printed annual report• Printed newsletter• Printed magazines

But not electronic versions …

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Standard rated:• Electronic newsletter• Members’ only area of website• Discount on standard rated

goods/services• Free goods or services (if standard

rated to buy)

Membership benefits

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• If all one type of benefitVAT status follows that

• If a number of benefitsoption for charity to

apportion as if multiple supply

VAT status of subscriptions

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Valuation of benefits• If part of the subscription is a donation,

the benefits must be valued at market value

• If not a cost basis can be used or a market value basis so long as consistent

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Output VAT due on the whole payment for supporter scheme even when benefits below the Gift Aid donor limits (e.g. < 5% for £1,200)

Benefits = ticket discounts, previews, events e.g. meet the director, post show parties etc.

But if use Gift Aid split payment approach (min payment, suggested donation), VAT only due on minimum payment, excess is a donation

Serpentine Trust VAT case

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• SV assisted HMRC and a group of theatre and arts charities in clarifying the HMRC gift aid guidance for such schemes

• How to calculate benefit values such as discounts etc.

• Should help VAT position as well

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Patron schemes

• Audit objectives available on website

• 1,057 gift aid audits in 2012/13

• Raised £6m additional tax

• Average of £5,676 per check

• Perform sample test of individual reclaims

claim → evidence of receipt → valid

declaration

• Review compliance with Gift Aid rules

• Extrapolate results in calculating reclaims

HMRC audits - what to expect

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• Demonstrate clear audit trail Receipt

Donor

Valid declaration

Paper or computer records

Record-keeping

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• Audit trail through to each individual donor

• Need name not e.g. “Granny”• Need home address not office• Watch benefit rules - travel and

accommodation costs are deemed a benefit

• Donations from connected persons are then disallowed

Sponsorship

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• Wrong wording on declarations• Connected persons & joint bank a/cs• CAF vouchers• Company donations• Consolidating donations under one

person• HMRC guidance changes

Other problem areas

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• Separate claims by income type• Scripts for telephone

operators/volunteers• Written procedures• Get any specific HMRC rulings in writing• HMRC reclaims are negotiable

Tips

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Further guidance

Helen.Elliott@sayervincent.co.ukwww.sayervincent.co.ukPublications • made simple guides• updateswww.gov.uk/claim-gift-aidwww.gov.uk/charities-and-tax

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