Sarah Williams highlights the VAT and Gift Aid implications for
the treatment of funds raised by volunteer runners and the
imposition by charities of minimum fund-raising targets.
Since the New Year, many runners have been out on the streets
training for a spring marathon, putting new resolutions into
effect. Many of these may also be training for a spring marathon,
perhaps also raising funds for charity and/or running on a charity
place. While the runners face their particular challenge of 26.2
miles to the finish, charities have their own challenge of ensuring
they maximise their fundraising, without falling foul of the tax
According to the Virgin London Marathon Website, the London
Marathon is 'the largest annual fundraising event on the
planet', with runners having raised 'over £500
million for good causes since the race began in 1981'. Such
events offer great fundraising opportunities for charities, but
most charities will also be able to tell you that they have been
stung by runners who promise the earth but fail to deliver on their
fundraising targets. Many charities are seeking to get tougher on
these faux fundraisers, who waste valuable gold and silver bond
places. However, in their efforts to maximise funds raised,
charities have to beware of the tax traps.
Much of this fundraising relies upon pledges. Where the charity
asks the runner to pledge to raise a certain minimum amount of
money, but allows the runner to take part in the event whether or
not they meet the pledge, no VAT will be due on money raised by the
runner (subject, as will be seen below, to the runner not also
receiving any benefits). However, this relies upon the runner's
goodwill in fulfilling the pledge. If, on the other hand, the
charity requires the runner to raise a certain level of funds for
the charity before being allowed to participate, HMRC will treat
this as equivalent to an entry or registration fee which will be
taxable at the standard rate. That said, any payments over the
threshold required by the charity could still be treated as
donations and outside the scope of VAT.
Can charities offer benefits to their runners to encourage them
to succeed? HMRC consider that if a charity provides benefits or
gifts to its runners (for examples bikes, watches, free travel and
accommodation) then the amount raised by the runner will be taxable
at the standard rate of VAT. HMRC accepts, however, that certain
provision by a charity to its runners will not be regarded as a
benefit for these purposes, eg the provision of free training and
health advice or a post-race reception and free massages at the
event. Similarly, prizes offered to top fundraisers are not treated
as benefits for VAT purposes.
The gift aid scheme increases the value of donations to
charities, but a donation must be freely given. If charities
contractually oblige their runners to raise a certain amount of
money (or personally to meet any shortfall in their fundraising
commitment), the money is no longer a pure donation, but an amount
paid pursuant to contract. As such, it would be ineligible for gift
aid, and liable to tax.
If participants receive any benefits above permitted limits,
this can affect the eligibility for gift aid of funds received from
them. For example, if a charity does not charge its runners the
full cost of a gold bond place, HMRC will regard the discount
received by the runner as a benefit. If that benefit exceeds the
gift aid donor benefit limits, it will disqualify from gift aid any
donation from the runner. Similarly, any person connected to the
runner for these purposes (such as a spouse, civil partner or close
family) will be deemed to receive an equivalent benefit, thereby
jeopardising gift aid on any sponsorship raised from them.
Of course, tax (direct and indirect) is not the only
consideration when weighing up the risk of a runner failing to
honour a pledge as against the option of imposing a legal
obligation. For example, there are reputational aspects too - will
the charity want to pursue failed fundraisers for payment? Might it
put undue pressure on runners who are ill or injured to run for
fear of the financial consequences otherwise? Popular events are
highly competitive for charities, as well as participants: might it
deter potential supporters? The key perhaps is in refining the
application process to try and weed out those who are simply in it
for the personal challenge and not committed to the bigger cause.
If in doubt, charities should seek specialist advice to help them
identify the potential risks and benefits of different options, and
to maximise their return from these events.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This article first appeared in the newly released book from NERA Economic Consulting,' The Line in the Sand: The Shifting Boundary Between Markets and Regulation in Network Industries.' With a foreword by Alfred E Kahn.
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