Luke West considers some of the income tax issues arising when charities hold fundraising activities.
From cake sales to black tie events to white water rafting, the ideas used by charities to attract people's interest to participate in raising funds for a worthwhile cause are many and varied.
Black tie and gala events
Charity trustees should ensure that, where possible, the funds raised during events will qualify for Gift Aid relief in the hands of donors, thereby maximising the funds. HMRC is happy to repay to the charity the resulting basic rate tax relief on qualifying contributions. But how do trustees ensure that contributions qualify for Gift Aid? The underlying premise is that a qualifying Gift Aid contribution must be a voluntary donation. It cannot be a compulsory payment linked to attendance at an event.
The voluntary/compulsory aspect needs to be negotiated with care, and comply with HMRC's guidelines. In addition, the words shown on the tickets should be chosen carefully as this can also dictate the relief available. This is best explained by example (table 1). In each case the donor may pay the same amount of £100, but it is only the last option that will maximise the Gift Aid relief.
Table 1: Ticket wording
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The ticket price for admittance is £100 |
Gift aid is not available; the ticket price is not voluntary. |
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The ticket price is £70 plus a 'minimum donation' of £30 is requested. |
Gift aid is available on any amounts in excess of £100; the 'minimum donation' is not voluntary. |
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The ticket price is £70 with a 'suggested donation' of £30. |
Gift aid is available on any amounts paid above £70; the excess is voluntary. |
Having considered these possibilities, trustees sometimes conclude that they will hold a 'donation only' event, where there is no ticket price, and people can attend regardless of what they give (even those who pay nothing at all). In this case, all donations would qualify for Gift Aid. However, trustees are legally obliged to take proper care of charity funds and should not put them at risk. If an event loses money, the trustees may be personally liable for the loss. A donationonly event may still be possible but professional advice should be sought.
Negotiate those rapids
Kayaking white water rapids and cycling thousands of miles up and down impossible climbs can really capture the imagination of many fundraisers and their supporters. But will the participant receive a 'benefit' from the charity? For example, will they receive free or subsidised accommodation, travel costs and meals? If so, the value of the benefit to the participant is the cost of the event, less any reimbursement he/she makes. Where the Luke West considers value of the benefit exceeds the permitted levels, Gift Aid will not be available on donations made by the participant. The permitted benefit levels can be found at www.hmrc.gov.uk/charities/gift_aid/ rules/adventure.htm
Furthermore if the participant is caught by the 'benefit rule', then donations made by persons 'connected' to the participant (typically a spouse, sibling, lineal descendant, their spouses, or a company under similar control) will similarly not qualify for Gift Aid.
Where it is possible that participants are receiving a benefit from an event, HMRC expects trustees to ensure that the event literature includes adequate narrative to explain that donations from persons 'connected' to the participant will not qualify for Gift Aid relief.
If a participant pays the full advertised cost of taking part in an event, then while that payment does not qualify for Gift Aid, all other donations made by the participant and persons 'connected' to them will qualify for Gift Aid relief. Clearly this maximises the Gift Aid relief possibilities.
But I must dash – my freshly baked cakes have cooled, leaving me just enough time to change into my dinner jacket. Now where did I leave that kayak paddle?
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.