Against the challenging backdrop of the wider economy, it is important that charities understand and take full advantage of the tax reliefs available to them…
The Gift Aid donor benefit rules allow certain flexibility for charities to claim Gift Aid even on donations where the donor receives a benefit in consequence.
Gift Aid is only intended for donations and does not cover payments to a charity to acquire goods or services. If a generous individual purchases a ticket from a charity for a fundraising event, that is not a donation (however charitable their intentions might be).
Many charities offer benefits to incentivise or reward donors. These benefits could be anything from a badge offered in a street collection, to a comprehensive package for annual members of a ‘friends’ scheme for a heritage site. These benefits are often worth far less than the amount contributed to the charity.
The donor benefit rules allow charities to claim Gift Aid on certain donations, even where the donor receives benefits in consequence of the donation — as long those benefits do not exceed certain limits and restrictions.
Benefit limits: the key details
The limits on the value of benefits that can be received in consequence of a donation (applicable from 6 April 2019) are:
- Donations of up to £100: 25% of the donation
- Donations of over £100: £25 plus 5% of the amount over £100 (up to a maximum of £2,500)
Benefits are valued-based on their worth in the hands of the donor. In most instances this is based on the ordinary retail value of the benefit. For example, if a donor to a charity receives a fountain pen which also retails in the charity’s shop for £20, then the benefit value is £20.
It is also important to note that the benefits rules do not apply to small bucket collections under the Gift Aid Small Donations Scheme (GASDS) scheme. No benefits are permissible apart from say a token sticker.
Complications of the donor benefit rules
What appears at first a simple calculation, is beset by detail when we start to look at individual cases.
Firstly, there is the question of how you define a benefit. Is, for example, is a thank-you statement to a donor at a charity event a benefit? It may or may not be depending on whether the statement is a simple acknowledgement of the donor’s generosity or, if it goes so far as to promote the donor or their business.
Additionally, you may have to consider whether the benefit is in consequence of the donation. If a parent makes a donation towards a school trip, is their child’s attendance on that trip a benefit in consequence of the parent’s donation? This might depend on whether that specific parent’s contribution is a determining factor in the school trip going ahead.
There is also the value of the benefit to consider. What if the donor receives something that does not have a retail value, such as an invitation to a non-ticketed event or a 10% discount in the charity shop? For non-ticketed events, it is usually accepted that the cost of the event divided by the number of attendees is a reasonable way to value the benefit. For discounts, the benefit can usually be valued by aggregating the take-up value across all members and dividing by the number of members (which relies on the charity keeping records of this information). There are many other possible examples of benefits that have no immediate established market value.
Special rules also apply to particular benefits (such as admission to view property) and particular arrangements (e.g. charity auctions). Some of these rules are determined by legislation while others are concessions agreed by HM Revenue and Customs (HMRC).
The donor benefit rules and concessions are changing routinely, a recent example of this being HMRC’s changed position regarding naming rights (the naming of a building or a seat after the donor). Previously HMRC said that naming rights could be disregarded as a donor benefit even if solicited by the donor, whereas now they state that the naming rights must be unsolicited.
The above are examples of a wide range of different cases, rules and opinions, which continue to be updated and clarified.
HMRC have their own comprehensive guidance on the donor benefit rules which provides many helpful examples. However, charities should be wary of relying solely on this guidance as it reflects HMRC’s own interpretation of the law and their examples can make conclusive statements about situations that could vary depending on the facts.
The importance of planning
Charities should plan effectively in advance to ensure that they don’t miss out on the opportunity to claim Gift Aid by falling foul of the donor benefit limits or put undue strain on future finances by having to repay Gift Aid that has been claimed in error.
Gift Aid is a highly valuable tax relief for charities and every opportunity should be taken to maximise its usefulness and value.
At Buzzacott, helping charities maximise the value of Gift Aid and other tax reliefs is something we do every day. Our charity tax experts can review your charity’s individual circumstances and advise on how to optimise your Gift Aid position and the practical steps to do this.