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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
2
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
3
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)
4
Individual Gift Aid - how it works
5
£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
6
Cash
Cheques
Direct debit/SO
Credit/debit card
Any currency
What counts as a donation?
7
×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
8
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
9
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
10
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
11
• 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
12
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
14
• 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
15
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
16
• 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
17
• 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
18
• 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
19
• 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
20
• 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
21
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
22
• 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
23
• 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?
24
• Generally qualify for exemption
• Registration fees then exempt
• Sponsorship raised exempt
• Eligible for Gift Aid
Marathons and similar
25
• 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
26 26
• 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
27
• 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
28
• 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
29
• 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
30
• 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
31
• 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
32
• 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
33
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
34
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
35
Why membership?
membership
voting rightsmagazine
feeling of belonging
free goods/ services
news about the charity
fundraisingdiscounts
building awareness
members’ website area
36
• A donation?
• Payment for benefits?
• A mixture of both?
Is your membership subscription…
37
• Donation or part donation? Gift Aid
• Benefits? subscription may be partly vatable
zero rate and/or standard rate
Tax and VAT implications
38
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
39
• 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
40
Membership subscription
• Donation as aboveor
• If benefits provided for subscription, then it could be subject to VAT
41
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
42
Membership benefitsZero rated:• Printed annual report• Printed newsletter• Printed magazines
But not electronic versions …
43
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
44
• 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
45
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
46
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
47
• 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
48
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
49
• Demonstrate clear audit trail Receipt
Donor
Valid declaration
Paper or computer records
Record-keeping
50
• 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
51
• 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
52
• Separate claims by income type• Scripts for telephone
operators/volunteers• Written procedures• Get any specific HMRC rulings in writing• HMRC reclaims are negotiable
Tips
53
Further guidance
Helen.Elliott@sayervincent.co.ukwww.sayervincent.co.ukPublications • made simple guides• updateswww.gov.uk/claim-gift-aidwww.gov.uk/charities-and-tax
54