Photo credit: Nataliya Vaitkevich
As a fundraiser, you raise lots of money, but careful planning will ensure you share as little as possible of that with HMRC. Paying the necessary tax is fine but going about fundraising the wrong way can mean you pay over the odds. So do check you are maximising your charity’s income, not HMRC’s.
Gift Aid
A donation worth £1,000 to your charity (including Gift Aid) will cost:
- £800 for a basic rate taxpayer
- £600 for a higher rate taxpayer, and
- £550 for an additional rate taxpayer
But to be able to claim (and keep) Gift Aid you need not only a valid declaration – make sure you are using the latest wording on HMRC’s website – but also there should be no, or very little, benefit in consequence of making the donation.
If you are providing a free place to a participant in a commercial event such as the London Marathon, Great North Run or Prudential Ride London they are getting a benefit equivalent to the cost of a place for an individual. This means they and their family are not allowed to Gift Aid their donations which could cost the charity lots of wasted Gift Aid.
However, if you charge a registration fee to the participant equivalent to the individual entry fee then all their relatives can sponsor them with Gift Aid. Note that the registration fee you charge must include VAT if you are VAT registered as this is a commercial event but the VAT on the entry fee – perhaps only £8 or £9 – will mean you can have so much more Gift Aid.
Where benefits are higher, such as for sponsored parachute jumps or overseas challenge events, participants often pay for the trip out of the sponsorship money they raise. If they are doing this, you must advise them in advance that their relatives must not Gift Aid their donations because of this benefit. Keep evidence of this to show HMRC if asked so you do not have HMRC refusing to pay the Gift Aid in case everyone is related to the participants. If participants pay for the jump or trip themselves, they have “bought the benefit” so then relatives can donate with Gift Aid.
VAT as well
If your charity, or its wholly-owned trading subsidiary, puts on its own event with a clear fundraising purpose and has no more than 15 similar events in the same location in a year then – so long as there is no more than two nights’ accommodation involved – the event will be an exempt fundraising event and so no VAT will be chargeable on the income of the event – whether, from ticket sales, sponsorship, advertising or anything else – and the profit of the event will not be taxable. Participants (and their families) can Gift Aid their sponsorship for the run, swim or whatever so long as they are not receiving benefits other than say a bottle of water, a chocolate or energy bar and a silver heat blanket at the end of the race.
Commercial events such as the London Marathon are different for Gift Aid and they are not exempt from VAT but you need to charge a registration fee including VAT as above. Then be very careful only to ask participants to pledge to raise any further amount. If you set a minimum target this will all be VAT inclusive – so you share the income with HMRC.
But if you are VAT registered and charge VAT on the registration fees, you can recover any VAT you had to pay on buying the places – probably more than you charged your participants so you are better off.
Let’s look at two ways of managing the fundraising for the London Marathon:
In each scenario, the charity pays £500 plus VAT (of £100) for a Gold Bond place, the individual entry place that year is £48, and relatives of the participant raise £1,200. In charity one, no registration fee is charged but participants are given a minimum fundraising target of £1,000. In charity two a registration fee of £48 is charged and participants asked to pledge to raise £1,000.
| Charity one £ | Charity two £ | |
|---|---|---|
| Income from relatives | 1,200 | 1,200 |
| Less: VAT to HMRC on minimum sponsorship | (167) | - |
| Registration fee including VAT | - | 48 |
| Less: VAT to HMRC | - | (8) |
| Gift Aid claimed where no benefit | - | 300 |
| Less: Cost of Gold Bond Place including VAT | (600) | (600) |
| VAT on Gold Bond Place recovered | 100 | 100 |
| Net income raised per participant | £533 | £1,040 |
Multiply this result for many participants and over numerous events and it will give very different fundraised income.
Are you going to be charity one or two? Do your colleagues know enough to do this too? Good planning, considering both VAT and Gift Aid requirements will maximise the income for your charity rather than HMRC.
Helen Elliott
Helen is a partner at Sayer Vincent, a firm of auditors and advisors to charities and other not for profit organisations. You can read more on this topic in the free guide Tax for fundraisers made simple.
