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Eight common Gift Aid issues to look out for

Gift Aid and the Gift Aid Small Donations Scheme are worth £1.4 billion to UK charities annually, and government research in 2018 suggested they could be worth another £600 million. However for many charities Gift Aid is not as simple as it looks.

There are many potential complications in the Gift Aid process and below we have outlined a number of common issues you may need to address to ensure that your charity is claiming Gift Aid correctly and maximising its value.

  1. Gift Aid declarations must be prepared to meet various minimum requirements – common issues that can invalidate declarations include; insufficient wording, incomplete personal details and declarations not joining up with supporting records for the donation.
  2. Benefits (e.g. badges, event tickets, literature, commercial discounts) provided to donors in return for their donations must fall within certain limits. Calculating the value of these benefits can be complicated, particularly where diverse benefits are provided (such as in charity membership schemes).
  3. There are various approved schemes for specific scenarios such as donated goods in charity shops, charity auctions, and viewing charity property. However these schemes have their own separate (and in some cases lengthy) compliance rules which must be followed correctly. Make sure you are aware of and adhering to the rules of the correct scheme.
  4. Cash collections under the Gift Aid Small Donations Scheme must follow the specific control systems and record keeping procedures for that scheme. 
  5. Donors must give their own money, which can create complications for sponsorship collections such as charity runs, for example. Charities with large amounts of sponsorship income may consider asking for this point to be confirmed by donors in the charity’s own template declaration.
  6. Sufficient records must be kept for a certain period in the event of inspections. The form of record keeping is not prescribed in legislation and depends on the scale of the charity and its donations.
  7. Many Gift Aid opportunities are missed. This may be because donations are erroneously thought not to qualify for Gift Aid (e.g. donations from overseas residents with UK income or donations with small benefits), or simply because the charity has not implemented a working Gift Aid system.
  8. Many charities can maximise the potential of Gift Aid, by planning, implementing and reviewing their current Gift Aid system.

 

Buzzacott can help your charity with the whole process of Gift Aid. We can help by:

  • Assisting with the setup of a Gift Aid system for collecting donations and supporting records.
  • Testing and auditing existing Gift Aid systems (including for specific schemes such as Retail Gift Aid) to reduce error rates and any HMRC claw back.
  • Reviewing charity membership schemes for Gift Aid eligibility.
  • Registering charities for Gift Aid and submitting Gift Aid claims.
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You might also be interested in… Can your charity claim Gift Aid on membership subscriptions?

Subscribers to a membership scheme for a charity usually receive some benefits in return for their subscription. Some charity memberships provide only benefits of trivial monetary value (such as a pin badge or an acknowledgement in a newsletter); other memberships may provide comprehensive benefits packages including retail products, invitations to events and commercial discounts.

In principle, Gift Aid can only be claimed on donations. Payments to a charity for the purpose of acquiring goods and services are not donations, but a charity may also provide token benefits to a donor in consequence of their donation.

Determining eligibility

So how do we determine whether a charity membership is a payment for goods and services (on which Gift Aid cannot be claimed) or a donation with token benefits provided to the donor (on which Gift Aid can be claimed)?

Generally, this is determined by comparing the value of the benefits package with the amount of the membership subscription. A membership subscription will usually be eligible for Gift Aid if the total value of the membership benefits is within the following limits (applicable from 6 April 2019):

  • For membership subscriptions of £0-100: 25% of the subscription amount
  • For membership subscriptions greater than £100: 25% of the first £100 plus 5% of the amount above £100
  • The maximum limit is £2,500.

For example, an individual pays £70 for a charity membership and in return receives a book which normally retails for £10 plus an invitation to an event which costs £5 to non-members. As the total value of the benefits (£15) is no more than 25% of the membership subscription (£70), the whole subscription is eligible for Gift Aid and the charity can claim an additional £17.50 (i.e. £70 x 25%) Gift Aid repayment from HM Revenue and Customs.

Valuing the benefits

In most cases, the value of a benefit for Gift Aid purposes is taken as the sale price to the public of the same item, although there are numerous exceptions.

Benefits with nil value

Some membership benefits can be treated as having nil value for Gift Aid purposes (subject to certain conditions). These may include:

  • Voting rights and the right to attend the charity’s AGM
  • Literature which describes or promotes the charity’s work
  • Priority bookings for events
  • Annual right of admission to view charity property
  • Acknowledgement of the member’s donations

Discounts

If discounts on goods and services are provided to members, these are valued on the take-up of the discounts averaged across all of the members (including members who do not claim any discounts). The charity must keep complete records of the discounts claimed.

Events

If the membership package includes tickets to an event, the value will be the price that the same tickets are sold for to the public. If tickets to the event are not sold to the public and there is no comparable ticketed event, then the value should be based on the cost to the charity of the event and the number of people in attendance.

Split payments

If the total value of membership benefits exceeds the limits above, it may still be possible to ‘split’ the membership into two amounts – one to cover the cost of the benefits and one as a donation.

This can be done if:

  • The benefit can be purchased separately.
  • The donor is aware of the value of the benefit at the time the donation is made.

The payment for the benefits will be subject to VAT (depending on the type of benefits provided) and will not be eligible for Gift Aid. The donation element will not be subject to VAT and will be eligible for Gift Aid.

Optimise the value of Gift Aid

With suitable planning, a charity membership scheme can be structured to optimise the value of Gift Aid. For example, certain membership benefits can be sold separately from the membership subscription, or a charity can set up a range of membership options such as gold/silver/bronze membership schemes with different subscription rates. However, charities should be mindful of any VAT implications when making changes to their membership schemes.

Gift Aid declarations

In the same way as with other donations, a valid Gift Aid declaration must be collected in order for the charity to make a Gift Aid claim for a membership subscription. The declaration can be made on paper, online or orally, and is usually completed as part of the subscription process.

Gift Aid must be claimed within four years from the end of the accounting period (for charitable companies) or tax year (for charitable trusts) in which the subscription was received.

We would encourage membership charities to review their subscriptions as soon as possible to ensure that Gift Aid opportunities are not missed.

For further advice on your charity’s membership scheme and Gift Aid, please speak to your usual Buzzacott contact or:

E | enquiries@buzzacott.co.uk

T | +44 (0)20 7556 1200

About the author

Jon Daley

+44(0)20 7556 1292
DaleyJ@buzzacott.co.uk
LinkedIn

Subscribers to a membership scheme for a charity usually receive some benefits in return for their subscription. Some charity memberships provide only benefits of trivial monetary value (such as a pin badge or an acknowledgement in a newsletter); other memberships may provide comprehensive benefits packages including retail products, invitations to events and commercial discounts.

In principle, Gift Aid can only be claimed on donations. Payments to a charity for the purpose of acquiring goods and services are not donations, but a charity may also provide token benefits to a donor in consequence of their donation.

Determining eligibility

So how do we determine whether a charity membership is a payment for goods and services (on which Gift Aid cannot be claimed) or a donation with token benefits provided to the donor (on which Gift Aid can be claimed)?

Generally, this is determined by comparing the value of the benefits package with the amount of the membership subscription. A membership subscription will usually be eligible for Gift Aid if the total value of the membership benefits is within the following limits (applicable from 6 April 2019):

  • For membership subscriptions of £0-100: 25% of the subscription amount
  • For membership subscriptions greater than £100: 25% of the first £100 plus 5% of the amount above £100
  • The maximum limit is £2,500.

For example, an individual pays £70 for a charity membership and in return receives a book which normally retails for £10 plus an invitation to an event which costs £5 to non-members. As the total value of the benefits (£15) is no more than 25% of the membership subscription (£70), the whole subscription is eligible for Gift Aid and the charity can claim an additional £17.50 (i.e. £70 x 25%) Gift Aid repayment from HM Revenue and Customs.

Valuing the benefits

In most cases, the value of a benefit for Gift Aid purposes is taken as the sale price to the public of the same item, although there are numerous exceptions.

Benefits with nil value

Some membership benefits can be treated as having nil value for Gift Aid purposes (subject to certain conditions). These may include:

  • Voting rights and the right to attend the charity’s AGM
  • Literature which describes or promotes the charity’s work
  • Priority bookings for events
  • Annual right of admission to view charity property
  • Acknowledgement of the member’s donations

Discounts

If discounts on goods and services are provided to members, these are valued on the take-up of the discounts averaged across all of the members (including members who do not claim any discounts). The charity must keep complete records of the discounts claimed.

Events

If the membership package includes tickets to an event, the value will be the price that the same tickets are sold for to the public. If tickets to the event are not sold to the public and there is no comparable ticketed event, then the value should be based on the cost to the charity of the event and the number of people in attendance.

Split payments

If the total value of membership benefits exceeds the limits above, it may still be possible to ‘split’ the membership into two amounts – one to cover the cost of the benefits and one as a donation.

This can be done if:

  • The benefit can be purchased separately.
  • The donor is aware of the value of the benefit at the time the donation is made.

The payment for the benefits will be subject to VAT (depending on the type of benefits provided) and will not be eligible for Gift Aid. The donation element will not be subject to VAT and will be eligible for Gift Aid.

Optimise the value of Gift Aid

With suitable planning, a charity membership scheme can be structured to optimise the value of Gift Aid. For example, certain membership benefits can be sold separately from the membership subscription, or a charity can set up a range of membership options such as gold/silver/bronze membership schemes with different subscription rates. However, charities should be mindful of any VAT implications when making changes to their membership schemes.

Gift Aid declarations

In the same way as with other donations, a valid Gift Aid declaration must be collected in order for the charity to make a Gift Aid claim for a membership subscription. The declaration can be made on paper, online or orally, and is usually completed as part of the subscription process.

Gift Aid must be claimed within four years from the end of the accounting period (for charitable companies) or tax year (for charitable trusts) in which the subscription was received.

We would encourage membership charities to review their subscriptions as soon as possible to ensure that Gift Aid opportunities are not missed.

For further advice on your charity’s membership scheme and Gift Aid, please speak to your usual Buzzacott contact or:

E | enquiries@buzzacott.co.uk

T | +44 (0)20 7556 1200

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