1. Helen Elliott 5 November 2015 Gift Aid and VAT - what should you know to maximise your income?

2. Gift Aid basics Fundraising events Challenge events Corporate support Membership HMRC audits Agenda 2

3. Gift Aid – two types TypeCharity can recover Gift Aid? Applies toExamples Corporat e Gift Aid NoUK corporation tax payers Companies Associations Societies Individual Gift Aid Yes, if conditions met UK income & capital gains tax payers Individuals Sole traders Partnerships LLPs Private trusts 3

4. Corporate Gift Aid 1.No Gift Aid to be reclaimed by charity 2.Works purely as a tax relief for company 3.Company deducts Gift Aid from profit to reduce tax charge 4.No need for a declaration 5.But other Gift Aid conditions apply (monetary gift, donor benefit rules, anti-avoidance rules) 4

5. Individual Gift Aid - how it works 5 £100 net pay £125 gross pay + Gift Aid declaration + 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

6. 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

7. 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)

8. 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

9. 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

10. 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

11. 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

12. 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

13. Connected persons A 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

14. DonationBenefit allowed Up to £10025% of the donation £100-£1,000£25 Over £1,0005% of the donation Overall limit£2,500 Gift Aid benefit rules The government is currently considering simplifying these rules 14

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Generally qualify for exemption Registration fees then exempt Sponsorship raised exempt Eligible for Gift Aid Marathons and similar 25

26. 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

27. 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

28. 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

29. 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

30. 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 priceCost-=Margin VAT on overheads will be recoverable, but not on direct costs 30

31. 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

32. 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

33. 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

34. 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

35. 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

36. Why membership? membership voting rights magazine feeling of belonging free goods/ services news about the charity fundraising discounts building awareness members’ website area 36

37. A donation? Payment for benefits? A mixture of both? Is your membership subscription… 37

38. Donation or part donation? Gift Aid Benefits? subscription may be partly vatable zero rate and/or standard rate Tax and VAT implications 38

39. If membership has no benefits or only benefits are: Voting rights Annual report Newsletter Minimal benefits HMRC will normally accept it is a donation and can therefore be Gift Aided Membership and Gift Aid 39

40. 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

41. Membership subscription Donation as above or If benefits provided for subscription, then it could be subject to VAT 41

42. Membership benefits Exempt: 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

43. Membership benefits Zero rated: Printed annual report Printed newsletter Printed magazines But not electronic versions … 43

44. 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

45. If all one type of benefit VAT status follows that If a number of benefits option for charity to apportion as if multiple supply VAT status of subscriptions 45

46. 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

47. 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

48. 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

49. 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

50. Demonstrate clear audit trail Receipt Donor Valid declaration Paper or computer records Record-keeping 50

51. 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

52. 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

53. 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

54. Further guidance Helen.Elliott@sayervincent.co.uk www.sayervincent.co.uk Publications made simple guides updates www.gov.uk/claim-gift-aid www.gov.uk/charities-and-tax 54