WHEN IT COMES TO ‘GIVE AND TAKE’, CAN YOU GIVE TO CHARITY AND TAKE BENEFITS BACK?

Barry Leigh, a partner at Cohen Arnold accountants, takes a look at the possible ‘benefits’ of charitable giving.

Give and Take

It comes as no surprise to learn that HM Revenue & Customs (HMRC) does not take kindly to those who interpret this maxim too literally! The 17th century scientist, Swedenborg, noted ‘True charity is the desire to be useful to others without thought of recompense’. Whilst I firmly believe that donors are honestly giving true charity, it is not unusual for charities themselves to wish to acknowledge their donors in one form or another, or to sweeten the pill by inviting them to ‘give’ at an enjoyable function or event. The Gift Aid scheme is also a bonus for donors, who can help charities further by helping to claim back a percentage of their donation from the government - but there are strict rules guiding these transactions. So what is and what isn’t ‘allowed’? Since HMRC’s guidance is fairly lengthy, this article briefly attempts to provide some clarity in what has become a hugely complex and fraught area.

Payments Qualifying for Gift Aid

Payments made direct to a charity will NOT qualify for Gift Aid if:
• Donors stipulate conditions for use of the funds, which might involve the charity using them to acquire property or buy services from the donor.
• The donor or a ‘connected person’ (including the spouse, children, grandchildren, parents, grandparents or a company controlled by the donor or any the above) receives a benefit exceeding certain amounts relative to the size of the donation, as set out by HMRC.
• The donation is in reality a payment for goods and services provided to the donor by the charity.

Likewise, charity vouchers (i.e. cheques issued against a ‘charity account’ set up by an individual who has already paid Gift Aid) cannot be used in the circumstances set out above.

Modest benefits, limited to the amounts shown in the table below, will not prejudice the Gift Aid status of the donations, so long as the payment to the charity was not a payment for the benefit itself. A straight donation is acceptable, where the charity provides some kind of benefit in appreciation. So for instance, if the donor attended a tea afternoon and donated £100, the value of his benefit (i.e. a cup of tea and a piece of cake) is unlikely to exceed 25% of his donation (i.e. £25).

There are also rules governing annual donations and benefits in certain circumstances and a requirement that the donor does not receive more than £500 worth of benefits from any one charity in the tax-year. Since this aspect of the law is so complex it is best to consult with a professional adviser to ensure that the rules are being followed correctly.

Valuing Benefits

But how does one value the benefit one receives? Often this is in the form of a meal or a visit to the theatre. The key premise is the value to the recipient, not the cost to the charity of providing the benefit. In many cases, it will be simple: e.g. what is the price on the event ticket that is given to the donor?

Where the benefit is the attendance at a NON-ticketed event, (i.e. attendants are not charged an entry price) the value is calculated as being the average cost per head to the charity of running the event (before sponsorships). Where it is more difficult to ascertain, the charity needs to estimate what someone would pay for the benefit in a free market.

Three common scenarios are considered below, where payments may not be considered as donations, or where benefits provided often exceed the modest limits referred to above.

1) Charity Dinners

There are three main variations here.

• Firstly, where a charity suggests a ‘minimum donation’ in return for an invitation to its annual dinner, HMRC still views this as a payment to attend the event and not as a straight donation. But a donation in excess of the suggested minimum should qualify for Gift Aid.

• Secondly, invitations could be issued free, with no formal requirement for the invitees to donate; in which case any donations would qualify, subject to the level of benefit enjoyed by the donor as a result of attendance falling within the allowed limit. However, it’s important for the charity to ensure that its funds are not at risk by paying the costs of the event, so if this element was sponsored, the Gift Aid question should not be a problem. Even if no sponsor is found, the organisers may nevertheless conclude that they would be more likely to raise significant funds from a ‘donation only’ event.

• Lastly, where a formal entrance fee that covers all the costs of staging the event is charged, donations in excess of
the ticket price should qualify for Gift Aid.

Turning to the sponsor of the event, the sponsorship monies may qualify for Gift Aid so long as they are paid direct to the charity and the benefit limits above are not breached. It may well be sensible that if the sponsor is granted tickets to the event, they should be separately paid for so that they do not constitute a benefit.

2) Raffle Tickets and Charity Auctions

Purchasing raffle tickets, payments of school fees, attending an event such as a concert or participating in an adventure challenge (say, climbing Everest for charity) or acquiring an item at a charity auction are in the main considered as payments for goods and services and do not qualify for Gift Aid. But even here there are certain exceptions: for instance if, at an auction, the bidder is aware that a similar item to the one they are bidding for is available elsewhere and they know the market price, they could split the winning bid and write a cheque for the market price (which will not qualify for Gift Aid as it is a payment for purchase of the item) and a second cheque for the extra amount paid (which would qualify, as it would be seen as a donation).

3) Charity Membership

Subscriptions to a charity or synagogue (where registered as a charity) can qualify if it is for membership only and does not allow any personal use of the charity’s facilities, such as free use of sports equipment, use of community halls, tuition etc. However, members would be allowed to visit and view the work of the charity and take part in activities that achieve its objectives. Rather surprisingly, paying for a spouse’s subscription does not qualify, as that is considered as a gift of membership to the spouse rather than a donation!

There are numerous other scenarios that could require further consideration and readers should seek professional advice, specific to their circumstances.