What is Gift Aid?
Gift Aid is an Income Tax relief designed to benefit charities and Community Amateur Sports Clubs (CASCs).
- Unless otherwise indicated in this guide, the term "charity" includes a CASC.
Under Gift Aid, a charity may claim a tax refund when it receives a donation payment from a UK resident taxpayer.
- The individual donor must have paid sufficient Income Tax or Capital Gains Tax in order to cover the grossed up amount of the donation made.
- The relief is set out in Chapter 2 Part 8 ITA 2007.
- Gift Aid relief does not apply to donations made by companies.
How Gift Aid works
Tax relief for the charity
- A donation made under Gift Aid is treated as if it has been received by the charity net of basic rate tax.
- The charity is then able to reclaim the basic rate tax credit.
For example:
If an individual taxpayer makes a donation of £100, the charity can reclaim an additional £25 (£100 x 20/80)
• A donor who is a basic rate taxpayer will receive no further tax relief as a result of making a donation.
• A donor who is a higher and/or additional rate taxpayer will be able to claim tax relief on the difference between the higher/additional rate tax and basic rate on the grossed up donation.
For example:
An individual taxpayer makes a donation of £100, the charity can reclaim an additional £25, giving a grossed-up donation of £125.
Where the taxpayer is a 40% taxpayer, £25 (40%-20% x £125) can be reclaimed, giving a net donation cost of £75.
Where the taxpayer is a 50% taxpayer, £37.50 (50%-20% x £125) can be reclaimed giving a net donation of £62.50.
What form of donation qualifies for Gift Aid?
- Gift Aid applies to money donation payments.
- Providing certain qualifying conditions are met payments for subscriptions, memberships, sponsorship may also be Gift Aided.
- Gift Aid is restricted where a donor receives a valuable benefit as a consequence of making a donation. Benefit limits are set out in the Income Tax Act 2007.
Compliance
To operate Gift Aid, a charity is required to:
- Be properly constituted and register with its appropriate supervisory body, and
- apply to HMRC in order to obtain a registration number and claim its tax repayments on Gift Aided donations.
To claim a tax repayment a charity is required to:
- Ensure that donations are supported by Gift Aid declarations
- Maintain sufficient records for audit trail
- Complete HMRC form R68(1)
Key areas of difficulty for charities and their advisers
The Gift Aid legislation contains a series of complicated rules in respect of associated benefits; these are explained in more detail in the Overview section.
HMRC provides some detailed guidance on dealing with specific forms of donations in different sectors; these are discussed in more detail in the
Special Cases section.
Non-Gift Aid: other types of gift
- Shares, securities or real properties to charities (Part 8 Chapter 3 ITA 2007), or
- Trading stock (S108 -110) ITTOIA 2005
Companies and Gift Aid
- Charitable companies are able to reclaim Gift Aid on donation payments made by individuals.
- Donations made by companies to a registered charity or CASC are not within Gift Aid relief. However, a company may receive Corporation Tax relief on the charitable donations it makes as a deduction from its profits. Back to top
Donations that qualify for Gift Aid
A donation will qualify for Gift Aid relief providing that:
- It is accompanied by a Gift Aid declaration and,
- Conditions A to F (the "Gift Aid Conditions") are met:
- The gift is a payment of a sum of money.
- The payment is not subject to any repayment conditions.
- The payment is not a donation under the payroll giving scheme (section 713(3) ITEPA 2003).
- The payment is not deductible in calculating the donor's income.
- The payment is not related to any arrangement involving the acquisition of property by the charity from the donor or persons connected to him.
- Any benefits associated with the gift do not breach certain set limits ("benefits").
What is a gift?
A gift includes a payment for no consideration or in consideration of a small benefit.
- A payment in return for goods, rights or services is not a gift.
- An overpayment over and above the market value of goods, rights or services can be a gift.
What is a payment?
A payment includes payment by cash, cheque, direct debit, credit card, debit card, postal order, standing order, banker's draft, telegraphic or online banking transfer.
A sum of money
A "sum of money" can be in any currency. It excludes:
- A gift of services or non-cash assets
- A release of a debt or a waiver
- An accounting or book entry
- A gift by will
Gift Aid can apply to payments made of:
- Subscriptions
- Membership fees
- Successful bids at charity auctions and fund-raising events
- The proceeds of the sale of the donor's goods
- Sponsorship payments
Gift Aid does not apply to:
- Gifts of money with conditions attaching
- Payments for goods or services
- Set participation fees
- Payments made using charity vouchers or cheques
- Loan waivers
- Barter transactions
- Gifts from companies
Benefits
- Gift Aid is restricted where a charitable donor receives a valuable benefit as a consequence of making a donation.
- The level of benefit that is permissible is strictly calculated according to the size of the donation.
- It can be difficult to value benefits, especially where there is no commercial equivalent.
- There are some oddities within the rules: for example, free entry to view charity property in return for a donation that is at least 10% more than the usual admission charge fee is not treated as a benefit.
Defining benefits
A benefit is treated as being associated with a gift if the donor or a person connected to him receives the benefit as a consequence of making the donation.
The value of any benefit must not exceed defined limits in order to meet Gift Aid condition F.
This test is decided on the basis of the result of a benefit value test.
- For single gifts: on a benefit value per gift basis.
- For a series of gifts: on the basis of an aggregate value.
Benefit Value Tests
Per gift:
The value of a benefit deriving from a gift is calculated as follows:
| Amount of donation | Benefit value limit |
| £0 -£100 | 25% of the gift |
| £101 - £1,000 | £25 |
| Above £1,000 | 5% (prior to 5 April 2007 - 2.5%) of the gift |
| Above £10,000 | £2,500 (from 6 April 2011)
£500 (from 6 April 2007)
£250 (before 5 April 2007)
subject to the rule that the benefit must not exceed 5% of the gift |
| For example: Jill is a member of a Ambridge Tennis Club, a Community Amateur Sports Club (CASC). If she makes a donation of £10 to the club it will qualify for Gift Aid provided that she is a taxpayer and she receives no benefit or a benefit that does not exceed £2.50 (25% of £10) from the club in return for her donation.
If the club charges members £3 per session for use of its lawn courts and it wishes to give members like Jill a free session in return for making a donation then the member must donate more than £12 in order to ensure that the 25% benefit test is met.
Alternatively, if Jill agrees to pay separately for her tennis session and then makes a donation the two payments should not be linked and the donation should qualify for Gift Aid, whatever the size. |
It follows that advisers should ensure that charities and clubs have a full grasp of the benefits rules to ensure that there is no risk that a benefit and a donation may become linked.
Where a donor makes a series of gifts:
The Aggregate Value Test ensures that the maximum benefit that can be received by the donor taking into account all Gift Aid donations made during the tax year is £2,500 (£500 up to 6 April 2007).
| For example: Phil makes two donations of £50,000 to his favourite organic farming charity in 2012/13 and in gratitude it gives him holiday vouchers which entitle him to discounts worth £2,500 a piece . Taking each gift separately, the value of each holiday voucher does not exceed the 5% benefit test, however, the value of all the benefits received from this series of gifts amounts to £5,000 and so fails the Aggregate Value test. |
Anti-avoidance: gifts and benefits linked to periods of less than 12 months
The Benefit Value Test limits are modified in order to prevent avoidance of the benefit rules by splitting gifts.
Where gifts and benefits are linked the further conditions A, B, C or D, as follows, must be met:
| Condition: A. A benefit associated with the gift relates to a period of less than 12 months. B. A benefit associated with the gift consists of a right to receive benefits at intervals over a period of less than 12 months. C. A benefit associated with the gift is one of a series of benefits which are: - received at intervals, and
- associated with a series of gifts made at intervals of less than 12 months.
| If condition A, B or C is met, then: - the value of the benefit is taken to be the annual equivalent of its actual value, and
- the amount of the gift is taken to be the annual equivalent of its actual amount.
|
| D. A benefit associated with the gift is not one of a series of benefits received at intervals, and - the gift is one of a series of gifts made at intervals of less than 12 months.
| If condition D is met, the amount of the gift is taken to be the annual equivalent of its actual amount. |
What is the "annual equivalent" of a benefit or gift?
Step 1
Multiply the value of the gift and then the benefit by 365.
Step 2
If condition A or B is met in relation to the benefit (and neither condition C nor condition D is met in relation to it), divide the results by the number of days in the period of less than 12 months.
If condition C or D is met in relation to the benefit, divide the results by the average number of days in the intervals of less than 12 months.
| For example: Linda makes a payment of £120 to a performing arts charity and this entitles her to a five per cent discount on theatre tickets purchased in the next six months (183 days). She purchases tickets with a retail value of £300 in that six months and receives a discount of 5% or £15. The discount received meets Condition A (a benefit relating to a period of less than 12 months) and so the annual equivalent of the gift and benefit must be calculated. |
| Annual equivalent |
| Payment made: £120 | £240 (£120 x 365 days ÷ 183 days) |
| Benefit: £15 | £30 (£15 x 365 days ÷ 183 days) |
| The annual equivalent value of the discount of £30 exceeds the small benefit limit of £25 (the limit for donations of between £100 and £1,000): Linda's donation fails the benefit test and cannot qualify as a Gift Aid donation. |
Valuation of benefits
- Valuation can be difficult, especially where there is no market value or other method of comparison available.
- The starting point is that a benefit is valued on the basis of the value to the recipient rather than the cost to the charity of providing it.
- Where a benefit has no market comparison the method of valuation may be made by taking the cost to the charity of creating it - for example when an event is staged that is not open to the general public the benefit might be determined by taking the cost divided by the number of expected attendees.
Items not quantified as benefits for Gift Aid Condition F
- Small benefits; provided that they fall within the tests above.
- The right of admission to view charity property if it is granted for a period of at least a year at the same times as the general public can gain admission or in return for a donation of at least 10 per cent more than the admission charge.
- A simple acknowledgement of a donor's generosity provided that it is not an advertisement.
- Literature describing the work of the charity or CASC such as newsletters, annual reports or a members' handbook.
- Events or dinners where there is no significant element of additional fundraising involved.
Companies and Gift Aid
Charitable companies are able to reclaim Gift Aid on donation payments made by individuals.
Donations made by companies to a registered charity or CASC are not within Gift Aid relief. However a company may receive Corporation Tax relief on the charitable donations it makes as a deduction from its profits provided that:
- The donation does not come with a condition about repayment.
- The company or a person 'connected' to the company does not receive a benefit over a certain value in return for the donation.
- The donation is not subject to a condition or arrangement that the charity will purchase property (other than as a gift) from the company or a connected person.
- Relief is given after all other reliefs other than by group relief.
- Legislation: Part 6 of CTA 2010,
- See HMRC: Gifts to charity made by companies
Companies may also obtain tax relief on the cost of charitable gifts other than cash:
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Charities are able to claim Gift Aid relief on many different types of payment received from individuals. This section summarises some of the special rules that apply to such donations.
Fundraising: trips and events
A charity may obtain Gift Aid relief on payments it receives to finance its activities such as the laying on of trips and events
Donation payments made by both the supporters of the charity and participants taking part in a trip or attending an event may each qualify for Gift Aid:
- Where a supporter makes a donation this will qualify for Gift Aid.
- Where a trip or event is free and open to general participants, those who participate are able to Gift Aid any voluntary contributions that they decide to make towards its cost.
- Attendance should not be conditional on making the donation.
How this works:
Donations made by the supporters normally pass the benefit test because:
- They do not take part in the trips and events.
- They receive no benefits as a result of their payment.
| However, this requires care: it depends on how the donation is made and whether there is someone connected to the donor going on the trip. For example, if a parent donates money to a school for their child to go on a school trip, they are not taking part in the trip but their child is and the child is of course connected to the donor. |
The participants pass the benefit test because:
- The trip or event has already been funded by the contributions of others.
- There is no entry fee and so a donation made does not secure any additional benefit.
| For example: A charity raises £3,000 from its supporters to stage a fundraising fireworks festival. The event is fully funded by the supporters and open to everyone. During the event participants are encouraged to make donations to the charity, these potentially all qualify for Gift Aid relief. |
Payments that fail to qualify for Gift Aid
A payment made to participate in a trip or event will not qualify for relief if the payment is used by the charity to part fund the event. This is because it fails the benefit test, the value of the benefit will in those circumstances be the equivalent to the sum paid to take part.
A participant can alternatively be asked to pay a fixed fee to cover the proportion of the costs of running the event and then separately make a donation. The donation will then be separate from the participation fee and will qualify for Gift Aid.
Summary
| Donor | Qualifying for Gift Aid | Non-qualifying |
| Supporter | Donations made in order to fund events and activities promoting the objectives of the charity | Donations that are used to fund non-charitable activities |
| Participant | Donations that do not secure a benefit Unconditional donations | Participation fees, where the participant must pay to enter, pays a fee to enter or must raise sufficient funds to participate |
For further information see Charity events
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Fundraising: sponsorship
A charity may hold fundraising adventure or challenge type events such as sponsored walks, cycle rides, or adventure trips abroad. Participants taking part in these types of event are encouraged to obtain sponsorship which is then passed to the charity.
Where the cost is fully funded by the charity
- Where the event is fully funded by the charity and free to participants, all sponsorship payments may potentially be Gift Aided.
Where the participant pays an entry fee
- Where the event is not fully funded by the charity, participants may be asked by the charity to contribute to its cost, typically they may be asked to pay a non-refundable deposit, or a registration fee, and then raise sponsorship.
- In order to work out the value of a benefit, the charity is required to work out the cost, per participant, of holding the event.
- Where a payment by the participant equals the cost per participant, the payment will not qualify for Gift Aid because the benefit limits are exceeded (the benefit = the cost to the participant).
| For example: A charity organises a cycling treasure hunt. All prizes are donated by local firms. The charity incurs advertising and printing costs. It estimates that if 100 people take part the cost per participant is £3. It also provides forms and encourages participants to obtain sponsorship to complete the hunt course. It decides to set an entry fee of £5 per head. Over 100 people take part in the event. The £5 entry fee does not qualify for Gift Aid, as the cost of the event and so the benefit to the particpants is £3 per head. None of the entry fee may be Gift Aided: the benefit test is not met. |
Where the participant must raise sponsorship to take part
- Sponsorship by parties connected to the participant is treated as being made by the participant and as such they will only qualify for Gift Aid if the benefit limits are not exceeded.
- Sponsorship payments made by persons not connected to the participant are unaffected and can be Gift Aided.
Conversely, if the participation cost of the event is kept entirely separate from sponsorship, Gift Aid relief may be claimed on sponsorship funding. In order to qualify a participant must pay the charity the full advertised cost of the event from his own resources, so that the value of the donor benefit is reduced to nil.
| For example: A charity organises a trek across Africa. It calculates that the cost of the trek amounts to £1,000 per head. It asks participants for a deposit of £250 and requests that they raise sponsorship of at least £2,000 in order to take part in the trip. The benefit of the trip is the cost less deposit paid = £750 (£1,000 - £250). Brenda decides to take part in the trek, she raises £2,500 in sponsorship. The benefit of the trip of £750 is more than 5% of the £2,500 raised, and so none of her £2,500 sponsorship qualifies for Gift Aid. Alternatively, if Benda had agreed to pay £750 to the charity on her own account, all the sponsorship money collected would have qualified for Gift Aid. Note that: there are restrictions where sponsorship is provided by connected parties as below. |
Sponsorship and connected persons
When a participant is required to collect sponsorship in order to participate in an event, any sponsorship pledged by a person connected with the participant is treated as if it was donated by the participant. This has a significant effect on the benefit value tests.
For example (continuing the example above)
If Brenda had agreed to pay £750 to the charity on her own account, and contributed a further sum made up of donations received from sponsors made up of family members, the total contribution would have to exceed £15,000 in order to pass the benefit test (£750 is 5% of £15,000).
Charities should take all reasonable steps to ensure that Gift Aid payments are not received from persons connected to a participant in order to avoid breaching the benefit value tests. HMRC 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".
What is a "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.
HMRC has produced a template sponsorship form.
For further information see Adventure fundraising events
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Schools: special fundraising days
Schools with charitable status may hold special fundraising days in order to raise funds for themselves or in support of external charities. Typically, on a “non-uniform” day, children donate a small sum, usually £1 and in return are allowed to wear their own clothes for the day. Similar days may feature “crazy hair” “ mad hatters” or “wrong trousers”.
HMRC hold the view that as the children are required to make a donation to take part in the fun day, the benefit of the event is the donation and so the benefits value test is not met. However, where a donation is not mandatory, and children are able to participate even when they fail to make a donation then all donations made should potentially qualify for Gift Aid relief.
Where a school holds a special fundraising day for an external charity, it is receiving donations as agent for the charity and has no entitlement to the donations it receives. The charity is able to claim any Gift Aid relief (providing that any donations are accompanied by a Gift Aid declaration and audit trail).
For further information see Gift Aid for school charities
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Educational school trips: voluntary parental contributions
Where a school asks parents to contribute to the cost of school trip a parental contribution may qualify for Gift Aid relief in certain circumstances.
- A school may ask parents for voluntary contributions in respect of an educational trip (or any other event).
- If a school trip is fully funded by the school or others and will go ahead irrespective of any parental donations, then any voluntary parental contribution made will be eligible for Gift Aid.
- A voluntary parental donation will not qualify for Gift Aid relief if it secures any special treatment or benefit for the pupil, or is refundable, or conditional on other parental gifts.
Where parents are asked to contribute toward the cost of a school trip which will not go ahead without parental funding a payment will only qualify for Gift Aid where the benefit arising from the donation does not exceed the maximum permitted, see example below.
The rules in this area are also complicated by the fact that different types of school face further restrictions: whilst many private schools retain charitable status, state funded schools are not permitted to charge pupils for visits undertaken as part of the National Curriculum which occur during school hours.
| For example: A school visit has been arranged to a local museum, it is fully funded by the school and available to all pupils. Parents are asked to make voluntary contributions. The benefit to the child of the donation is £nil because the trip has already been funded by the school. |
Participation payments and benefit limits
A benefit is calculated on the basis of the average cost per pupil including 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).
| For example: The school asks parents for a voluntary contribution of £10 in order to fund a half-term trip to a gallery. The trip will not be able to go ahead without parental contributions. - The cost of the trip works out at £8 per pupil (transport £5 entry £2 and brochure £1). The benefit value of the trip is therefore £8 per pupil.
- A payment of £10 cannot be made under the Gift Aid scheme as the benefit of £8 exceeds the 25% limit (it is 80%).
If a parent wishes to make a voluntary contribution towards the trip that qualifies for Gift Aid it should be either: - Made separately or,
- Ensure that the benefits level is not exceeded.
So, a parent may decide to pay £10, as requested, and then may choose to pay: - a separate donation under Gift Aid for an extra amount, or
- £32 and the whole payment will qualify for Gift Aid, as the benefit of £8 is no more than 25% of the gift.
|
For further information see Gift Aid for school charities
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Educational Trusts: voluntary parental contributions
An Educational Trust may be established to provide education for children as an alternative to State education. Parents 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.
- Parental donations will only qualify for Gift Aid where HMRC can establish that the Trust would be able to meet the costs of providing the education in the absence of the donations.
- A payment (by donation or otherwise) made in return for educational benefits provided does not qualify for Gift Aid.
- Where a Trust is independently financed (by regular fees, regular donations, endowment or grant funding) and it is not dependent on additional parental donations, the cost of providing tuition etc for that parent’s child will not be treated as a benefit in consequence of the parental donation. Providing the other Gift Aid criteria are met, Gift Aid relief might be available on those donations.
HMRC says that the situation for each Trust is to be judged on its own merits.
• For further information see HMRC: School charities
Church collections
Charitable churches
A church may be recognised as a charity by HMRC. All donations received from collections or other means may attract Gift Aid relief provided that they are accompanied by a Gift Aid declaration.
- A church "envelope scheme" is being considered by HMRC: it is intended that a donor's details can be recorded on the envelope which can then be retained as part of the charity's audit trial.
- Regular donors should complete a single Gift Aid declaration to Gift Aid all future donations paid.
Churches collecting on behalf of charities
A church may make collections on behalf of various charities and these may qualify as Gift Aid donations.
If the church has not exercised any discretion in collecting donations, so that donations are merely given to the church to pass on to a particular charity then:
- The church has no entitlement to the donations it collects on behalf of the charity.
- The charity is able to claim any Gift Aid relief (providing that donations are accompanied by a Gift Aid declaration and audit trail).
If the church exercises its discretion and decides to open a fund for donations to a particular charity, then:
- The fund collected becomes a designated fund of the church;
- the donations form part of the church’s income; and
- the church is able to claim Gift Aid relief (subject to the normal requirements).
It is expected that the Gift Aid tax reclaimed should be passed to the charity by the church.
For further information see HMRC: Church collections
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Membership subscriptions
A payment made in respect of a membership subscription to a charity or CASC is treated as a gift provided that the following conditions are met:
- The payment does no more than secure membership of the charity.
- The payment does not secure a right to personal use of any facilities or services provided by the charity.
Benefits and subscriptions
A benefit received as a result of the payment of a subscription, such as:
- the receipt of periodic newsletters explaining the work of the charity, or
- an opportunity to visit and view the work of the charity,
is not treated by HMRC as a benefit for the purposes of the Benefit Value Test.
A subscription payment which enables the donor to use the charity's facilities will not qualify for Gift Aid as it secures a benefit (subject to the Benefit Value Test limits).
Personal use of facilities or services may include:
- Various training or playing benefits obtained for an additional fee over and above basic membership.
- Individuals’ tuition or coaching
- Other educational instruction
- Free or discounted use of, say, a golf course or a swimming pool, not available on similar terms to non-members.
An individual donor may pay for family membership or on behalf of a minor child on the same terms. The donor must, however, be the person who has given a Gift Aid declaration to the charity.
For further information see Membership subscriptions
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Admission fees A "relevant right of admission" is disregarded as a benefit for Gift Aid.
A right of admission means a right which:
- Benefits the donor or his family members (not necessarily all at the same time),
- Authorises admission to premises or property to which the public are admitted on payment of an admission fee,
- Authorises admission to those premises or that property without payment of the admission fee or on payment of a reduced fee.
Admission conditions
A right of admission is a relevant right of admission if:
- Conditions A and B are met, and
- either condition C or condition D is met.
Condition A: the opportunity to make a gift and to receive the right of admission in consequence is available to the public, and
- it is not conditional on making a Gift Aid declaration.
Condition B: is that the right of admission is a right granted by the charity for the purpose of viewing property that is preserved, maintained, kept or created by a charity for its charitable purposes. Such property includes:
- buildings
- grounds or other land
- plants
- animals
- works of art (but not performances)
- artefacts
- property of a scientific nature
Condition C: the right of admission applies, during a period of at least 12 months, at all times at which the public can obtain admission, however,
- the charity is permitted to restrict access for up to five days per year to allow for special charity events.
Condition D: a member of the public could purchase the same right of admission, and
- the amount of the gift is greater by at least 10% than the amount the member of the public would have to pay.
The same right of admission
This means a right relating to the same property, classes of persons and periods of time as the right received in consequence of the gift.
Summary
| Type of admission | Non-qualifying for Gift Aid | Qualifying for Gift Aid |
| To view charity property: open to the general public | The standard entrance fee A reduced entrance fee following a donation | A donation to allow admission for 12 months A donation to allow admission that is at least 10% higher than the standard entrance fee The right of admission must not be made conditional upon the donor making a Gift Aid declaration |
| To view: non-charity property, or use charity facilities or gain access to: | All admission fees | N/A |
For further information see HMRC:Admissions to view charity property
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Charity auctions
- Charities hold auctions in order to raise funds.
- They auction a range of different goods, services and often "promises".
A successful bid for an item at a charity’s auction can be Gift Aided provided that the benefits associated with the bid do not breach the prescribed Benefit Value Test limits.
The valuation of the benefit received in successfully bidding for an item at auction varies according to the nature of the item:
- If the item is commercially available, the value of the item for the benefit limit is the 'shop sale' price of the item.
- If the item is commercially available but it has an enhanced value, for example because it has been owned by a celebrity, the market value is deemed to be unascertainable, this means that no part of the successful bid at action may be Gift Aided. HMRC has changed it view on this, previously it agreed that the benefit value was the actual price achieved at auction.
- If the item auctioned is a “promise” its benefit value will generally be the auction price, as this is assumed to be its market price, unless there is another commercial equivalent.
A charity will need to consider the valuation of each item in advance of the auction. If a charity can advise potential bidders in advance this will ensure that successful bidders complete Gift Aid declarations on the day.
| For example: A charity is auctioning a range of items, the following table indicates what can and cannot be Gift Aided. |
| Item | Valuation | Bid | Gift Aid |
| A new boxed set of glasses | Shop price £10 | £20 | No, benefits limit is exceeded |
| Vintage tea set | Dealer estimates £25 | £100 | Yes, benefit is 25% of price paid |
| Signed photograph of a celebrity | Unknown: auction price | £? | No, benefit is unassertainable |
| Promise to clean car | Local car wash £5 | £10 | No, benefits limit exceeded |
| Promise to clean car | Local car wash £5 | £50 | Yes, benefit is less than 25% of the price paid |
| Promise to "carry your shopping for a day" | Unknown: auction price | £50 | No, benefit is auction price |
How to Gift Aid auction receipts
HMRC provides guidance for charities on how they might operate a workaround to the potential block on Gift Aiding auction bids. If the bidder is informed by the auctioneer prior to the auction of the commercial value or market price of the item, the bidder may agree to purchase the item at that price. In the event that the bidder is successful in winning that item in the auction, the amount bid in excess of the agreed purchase price is capable of being Gift Aided.
For further information see HMRC: Charity Auctions
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Voluntary workers expenses
A charity may reimburse voluntary workers for their out of pocket expenses. Provided that a volunteer does not profit from the arrangement there are no tax consequences for the volunteer.
- If a volunteer forgoes claiming the expenses he incurs, the amount forgone will not qualify for Gift Aid. This is because an amount forgone is not a payment.
- A volunteer may not donate his time in lieu of a payment under Gift Aid because there is no payment made.
In order to make a donation that does qualify for Gift Aid a volunteer should claim any expenses due back from the charity, and then make a donation payment to the charity separately.
For further information see HMRC: Voluntary workers expenses
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Goods: when sold and proceeds gifted
Where a donor donates goods to a charity in order to allow the charity to sell the goods in order to raise funds, the goods do not amount to payments and so Gift Aid relief cannot apply.
How to claim Gift Aid on goods sold
HMRC regards the practice of claiming Gift Aid on sold goods as pushing the boundaries of Gift Aid relief. As a consequence, it expects charities which seek to claim relief in this way to operate strictly within its guidance.
A charity, or its trading subsidiary may act as a sales agent on behalf of an individual donor. The proceeds of any sale received may then be potentially Gift Aided
In order for this to work:
- Legal or beneficial title to the goods to be sold never passes to the charity, it (or a trading subsidiary) sells the goods as a selling agent, on behalf of the donor.
- The donor may potentially Gift Aid any sales proceeds back to the charity, or he may keep the proceeds for himself.
- The donor may complete a Gift Aid declaration before the charity markets the goods, but this is ineffective unless the charity follows the next step and maintains a full audit trail.
- Once the goods are disposed of the charity is required to write to the donor and advise them that, unless he gives notice otherwise, in 21 days the sales' proceeds willl be treated as a Gift Aid payment.
- HMRC does not require the donor to write back again.
The charity must retain an audit trail to show:
- A copy of any written agreement made with the owner in order to sell the goods on their behalf.
- Documentation that the owner has been notified of the sale proceeds, and that they have been given the opportunity to receive all of the net proceeds.
- The Gift Aid declaration, together with the donor's name and address.
- Records to show how the goods are identified as belonging to a particular owner.
- In the case of a trading subsidiary of a charity records to show how the sale proceeds are remitted to the charity.
Acting as a sales agent may have unforeseen additional tax consequences for the charity or its trading subsidiary:
- Selling activities are likely to amount to trading; the charity may be liable to direct tax on any profits.
- It may be required to VAT register if its business activities exceed the registration threshold.
- The gift may fail as the potential donor may decide that he wants to retain his sales proceeds.
For further information see HMRC: Selling goods on behalf of individuals
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Gift Aid Top Ten
Ten tips for advisers and charities
Applying to use Gift Aid
Gift Aid can only be claimed back by a charity or Community Amateur Sports Club (CASC) that has applied to HMRC for a Gift Aid registration number and been approved by HMRC.
Registration
A charity or CASC is required to register with a charity regulator or HMRC: it depends on the type of body, its size and location
| Register with | England & Wales | Scotland | Northern Ireland |
| A charity regulator | Charities with an income > £5,000: the Charity Commission |
All charities: the Office of the Scottish Charity Regulator
| Charities with an income > £5,000: the Charity Commission |
| HMRC | - Charities with an income < £5,000
- CASCs
| | - Charities with an income < £5,000
- CASCs
|
Application to HMRC
Once a charity has made an application to HMRC it will be given a Gift Aid reference number and may claim tax repayments under Gift Aid.
- A responsible person, who is not the tax agent is permitted to apply to HMRC.
- The responsible person should have signed a Fit and Proper Person's declaration
Declaration: Fit and Proper Persons
Anyone acting as a manager of a charity or CASC must declare themselves "fit and proper" to act and must complete a declaration to that effect. See Fit and Proper Helpsheet and Model declaration.
Charities
Charities complete form ChA1 (this is only available online)
To qualify as a charity for tax purposes an organisation must:
- Be established for charitable purposes only
- Be based in the EU, or Iceland or Norway
- Be registered with a regulator (see table above)
- Be managed by an "authorised official' and 'responsible' persons
To complete the form the following details are required:
- Full name and address of charity
- Contact details, email, telephone number
- The name of the charity's regulator (if registered) together with a copy of the registration notification from that regulator
- Where the charity is not registered it is required to explain why it has not done so
- Tax references: UTR or Corporation Tax and VAT
- Details of the responsible person
- Details of the charity's governing document and date that this became effective. This can be its rules or constitution, memorandum or articles or foreign equivalent, a will or trust deed, an Act of Parliament.
- It must state whether it has used an approved or model document of the type approved by a national association, parent or principle regulator and if so whether it has retained the exact wording. If any changes have been made these must be disclosed.
See HMRC's guidance: How to complete Form ChA1 HMRC Charities Application Form
Community Amateur Sports Club (CASC)
A CASC may operate Gift Aid on:
- Voluntary donations
- Sponsorship of individuals raising funds for the club
CASCs are only required to apply to HMRC and not a charity regulator; they must complete a CASC application form
See: HMRC: How to complete Form CASC(A1) Community Amateur Sports Club
Registration
The following information is required to be sent with the form:
- Club's governing documents - such as prospectus, constitution, rules, or articles of association
- The club's latest accounts
The form should be returned to: HMRC Charities, CASC Unit, St Johns House, Merton Road, Liverpool L75 1BB
The main purpose of a CASC is to provide facilities for eligible sports, and to encourage people to take part in them.
To qualify as a CASC the club must be:
- Formerly constituted
- Organised on an amateur basis
- Not for profit, and prohibited from distributing profits other than to a charity or a CASC
- Open to the whole community
- Set up and provide its facilities in an eligible area
- Managed by fit and proper persons
Benefits to members may include:
- Use of the sporting facilities and equipment along with suitable coaching
- Medical treatment and insurance cover
- Some reasonable costs for travelling to away matches
- Some reasonable post match refreshments
- Sale of refreshments such as food and drink
Providing that it contracts on an arms' length basis it may:
- Buy goods or services from members
- Employ and pay staff who are also members
CASCs and members' bars
Many CASCs run a bar in their club houses. Charities and CASCs are permitted to engage in some low level trading activities and these activities are exempt from tax proving that certain qualifying conditions are met. These are set out in Section 46 Finance Act 2000. In summary:
Providing that a trading activity is permitted by the CASC's or charity's constitution, it is not the club's primary activity and profits must be applied solely for the use of the charity, trading is permitted if the following limits are not exceeded:
- A maximum trading income of up to £5,000 per year, or
- No greater than 25 per cent of the charity's total gross income in the period, if that income is between £20,000 and £200,000, or
- No greater than £50,000, if that income exceeds £200,000.
Authorising a tax agent
Use of a tax agent is optional. A charity or CASC may authorise a tax agent to act on its behalf by completing HMRC:form 64-8
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Having obtained a registration number from HMRC, a charity is able to reclaim tax from HMRC under Gift Aid.
In order to make a tax repayment claim a charity is required to:
HMRC operates a "check later" approach: a charity claiming a tax repayment under Gift Aid is subject to random checking by HMRC, see:
Retain and record Gift Aid declarations
- A donation under the Gift Aid scheme must be accompanied by a Gift Aid Declaration.
- A charity is required to keep sufficient records in order to identify donation receipts together with Gift Aid donors and their declarations.
- From 2013/14 charities may claim Gift Aid on collections of up to £5,000 per year comprising of small donations without obtaining a Gift Aid declaration, see News tab.
The Gift Aid declaration
It can be made:
One declaration may cover one or a series of gifts.
It is vital for the charity's tax compliance that it retains complete records of donations received.
Oral donations
A charity may receive donations by telephone. It is required to keep a record by audio recording or in writing of:
- The donor's: name: initial and surname, their address: house number/name and postcode
- The date of the declaration and written record
The charity should explain to the donor that:
- They must have paid enough Income Tax and/or Capital Gains Tax to cover the amount that all charities and CASCs they donate to will reclaim for that tax year and that the donor understands the charity will reclaim 25p of tax on every £1 that they have given (28p on every pound given for donations up to 5 April 2008).
- They have a right to cancel the donation within 30 days.
The charity should offer to send a copy of its written record to the donor.
A written declaration must include:
- The name of charity or CASC
- The amount of the donation
- The donor’s initials and surname
- His house name/number and postcode
- The date
- A statement or tick box confirming the amount should be treated as a Gift Aid donation
- The declaration may cover present/future/past donation(s) (see links to HMRC’s templates below)
- A confirmation that the donor was given explanation that they must have paid enough Income Tax and/or Capital Gains Tax to cover the amount that all charities and CASCs they donate to will reclaim for that tax year and that the donor understands the charity will reclaim 25p of tax on every £1 that they have given (28p on every pound given for donations up to 5 April 2008).
Identifying the gift or gift
There is no wording set in the legislation, so charities can chose. These are some commonly used descriptions:
- The donation of £[amount] that I make to you on [day/date]
- All donations that I make to you under direct debit commencing on [date]
- All donations I make from this date [date] and until further notice.
- All donations I have made since [date] and all donations I make hereafter.
Gift Aid Templates
HMRC provides the following templates for charities and CASCs:
A single donation Gift Aid declaration
- This is suitable for a one-off gift.
Apast, present and future donations Gift Aid declaration
- This is suitable for on-going giving, “past” covers donations for the past 4 years.
A sponsorship form including a Gift Aid declaration
- The saves donors from having to complete a separate Gift Aid declaration.
Note that: HMRC updated its templates in March 2012; charities and CASCs are expected to update their declarations to reflect the new wording by December 2012
Creating your own Gift Aid declarations: HMRC’s checklist
It is not obligatory to use HMRC’s templates. However, HMRC has created two declaration checklists that charities and CASCs may like to use if they decide to create their own for both gifts and sponsorship events:
Reclaiming tax from HMRC: form R68(i)
- A charity must use form R68(i) to reclaim tax on qualifying donations. This can only be completed online.
- Repayment claims must be made within four years of the end of the accounting period or tax year to which they relate.
- The charity is required to list each donor together with the amount of each donation received.
Since 12 March 2008 Charities and CASCs are able to add together small donations that they receive from multiple donors within certain limits.
The limits are:
- Each individual donation within the aggregated amount must not be more than £10.
- The aggregated amount on each line on the R68 schedule cannot exceed £500.
The entries on the repayment schedule must be suitably descriptive in order to enable the Charity or CASC to find the relevant Gift Aid declaration and audit trail information that support the amounts listed on the schedule.
The adding together of small donations cannot be applied to:
- Donations larger than £10
- Collections where there are no Gift Aid declarations
- Donations associated with admissions to charity visitor attractions
- The arrangements for sponsored events (above).
Audit by HMRC
HMRC selects charities and CASCs for audit using a risk-based and random selection.
The charity's trustees are responsible for ensuring that claims made under Gift Aid are accurate. and that sufficient records are retained for audit purposes.
See HMRC: charity audits
Record Keeping
While reviewing some of its guidance for charities in March 2012, HMRC identified an error. Its guidance stated that the four-year time limit for making claims under Gift Aid also applied to the retention of records. This was incorrect: records should be kept for at least six years.
HMRC realise that some charities may have relied on the incorrect guidance, and may as a consequence have destroyed records which would now be more than four years old. If this has been the case, HMRC will not penalise those charities.
For example:
HMRC inspects a charity in 2013/14. HMRC will expect it to have retained records for the previous six years. This means that it should have retained records which date back to 2006/2007. If that charity had relied on HMRC's previous guidance it may have only retained records from 2007/2008.
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