Gift Aid regulations for charities
Gift Aid is a complicated beast, particularly when it comes to the legislation for organisations looking to use it in their fundraising. You may be wondering, What is Gift Aid? Gift Aid allows charities to claim back 25p every time an individual donates £1 to your cause. This means effectively you are getting an extra 25% worth of donations, helping you make your fundraising go further and have more of an impact. Sounds good, doesn’t it?
What’s the catch?
As a charity, there are a few things you need to do first in order to claim Gift Aid on your donations. For one, you must be registered as a recognised charity or CASC (community amateur sports club). This means you must provide evidence that you have been established for charitable purposes and are registered with a regulator like the Charity Commission.
There are also certain things that your donors must do in order for you to claim Gift Aid on their donations. They must have paid at least as much in Income Tax and Capital Gains Tax in that tax year as you want to claim in Gift Aid.
Another sticking point is Gift Aid can’t be claimed on donations straight away. Donors will also need to complete a Gift Aid declaration form to evidence that you have permission from them to claim Gift Aid on their donations.
Once you’ve ticked off all these boxes, you’re ready to start claiming Gift Aid on any donations given to your charity. There are however, additional regulations for charities on what types of donations Gift Aid cannot be claimed on. So it’s worth grabbing a cup of tea and reading through these specific Gift Aid rules for charities so you know what’s what.
Sponsored sport challenges like marathons and Tough Mudder are popular ways to raise money for great causes. In fact, according to a report in 2018, 32% of people had sponsored someone for a charity in the last year. For the charities we work with, such as Teenage Cancer Trust, sporting events are a major part of their fundraising. For example, an amazing £4m was raised for Teenage Cancer Trust by Aldi employees who took part in sponsored cycle rides and marathons as well as other activities.
As sponsored events form such a substantial part of fundraising for charities, it makes sense to want to make the most out of these funds through Gift Aid. If you organise charity sport challenges, then you can claim Gift Aid on the sponsorship that the participants raise as long as the participants pay for the cost of any flights and accommodation. However, the deposit or registration fee for the event cannot be claimed as part of Gift Aid as this is classed as being placed in return for participating in the event, much like a ticket is bought to attend a music concert.
You also have to be careful of who the participants collect sponsorship from. If a sponsor is connected to a challenge participant in some way then their donation will only qualify for Gift Aid if the participant pays for the full cost of the trip. This includes if a sponsor is a spouse, civil partner, or relative of the participant, or the sponsor is a company that is under the control of the participant or another ‘connected person’. Don’t worry, this doesn’t mean you have to do a background check of everyone sponsoring a participant. HMRC doesn’t expect charities to check whether a participant and their sponsors are connected. But you can ask donors to explain why they are sponsoring a participant on the sponsorship form to check if there are in any way connected.
A lot of charities operate subscription plans for their supporters to spread out the cost of their donations across the year as monthly payments as opposed to one-off donations. However, only membership subscriptions qualify for Gift Aid. So if by signing up, a supporter can use a charity’s facilities or services, then their subscription will not qualify for Gift Aid.
This still allows members to receive newsletters about the charity’s work and take part in activities that are a part of the charity’s overall objectives. The same goes for members of CASCs as their membership payments include access to the club’s facilities or services, so cannot be used to claim Gift Aid. You also cannot claim Gift Aid on gifts made on behalf of someone else, which includes a subscription payment as this is seen as a gift to the receiver, not the charity. The exception to this rule is paying for the charity membership for a child (under the age of 18), which is considered eligible for Gift Aid.
We’re all pretty familiar with this Gift Aid regulation for charities – claiming Gift Aid on items sold in charity shops. If you sell items on behalf of donors in charity shops then you can also claim Gift Aid on any of the goods that you sell. However, there is a tricky part. In order to qualify, you need to explain to the owners of the donated items that your charity shop (or auction house or website) will act as an ‘agent’ in selling their goods on their behalf if the owner will donate the profits to the charity as a Gift Aid donation.
It’s essential that your charity shop staff explain this clearly to any individuals wanting to donate items to you before they fulfil a Gift Aid form. As the owner of the goods, they have every right to keep all the profits from the sale of their items and can choose how much to donate to your organisation. You can then claim Gift Aid on the amount they choose to donate (after any commission charge), but often this is the full amount raised from the sale.
Charity events and fundraisers
We love charity events, and we’re not the only ones. The number of fundraising events has increased by a whopping 700% since 2007 and the number of participants has doubled. As a huge fundraising generator for charities, events provide a great opportunity to generate even more money for your cause through Gift Aid. However, there are some rules and regulations.
When it comes to fundraising events, tickets and entry fees cannot be used to claim Gift Aid as the payment is not considered a gift to the charity. Instead, they are paid in return for entrance and participation in the event. Only voluntary donations (as opposed to compulsory ticket payments) qualify for Gift Aid. Minimum donations also do not qualify, but any amount over the set minimum donation does.
The same applies for entrance fees to charity properties – again, these are not seen as gifts but as mandatory fees to gain entrance. However, any voluntary donations that are 10% or above the normal admission fee or allows admission to the property for at least 12 months do qualify for Gift Aid. But you need to make sure that all visitors are clearly informed that they can enter the property by just paying the normal entry fee without needing to pay the additional voluntary donation. Honesty is always the best policy, after all.
Expenses paid by volunteers
Volunteers can choose to pay back part or all of any money to your charity that you have reimbursed them for any expenses e.g. train fares. If they choose to give it back to your charity, they can do so as a Gift Aid payment. However, if they don’t choose to claim for expenses that they’re entitled to, you cannot claim Gift Aid on their payments.
Charity auctions are fun, live events that provide a great opportunity for your organisation to raise some cash. The good news is, you can max out the impact of the money raised at your charity auction using Gift Aid. However, there are certain limitations.
The only way you can claim Gift Aid on an item bought in a charity auction is if the donor ‘buys the benefit’. To do this, you must make them aware of the retail cost of the item (the value of the benefit) and that they can buy the item elsewhere if they want when they make their successful bid (donation). You can also split the donors’ payment in half into the amount to ‘buy’ the item and the remainder which can be treated as a gift to your charity. The amount that is a gift qualifies for Gift Aid, but you have to make it super clear what the value of the item is to your bidders before it goes on sale.
In some auctions, supporters might bid on services which donors promise to carry out, like car washing or babysitting. These ‘promises’ must be the same value as the service’s retail price (if it’s commercially available) in order for it to be eligible for Gift Aid.
Donations to schools
Wanting to support schools through fundraising is a noble thing to do, however, like with charity properties donations to schools are not eligible for Gift Aid if the payment is in return for access to educational services or facilities. This includes educational trusts or charities involved in running schools. This is because these payments are not voluntary and are therefore not donations, even if they are classed as ‘voluntary contribution’ for providing these services or facilities to pupils. So payments or donations for extra-curricular activities, school trips, and tickets for school productions and things of that ilk are not eligible for Gift Aid.
There are obvious events that do qualify for Gift Aid, such as sponsored non-uniform days and sponsored events. The rule of thumb is if the donation isn’t linked to providing students with access to services or equipment, it usually qualifies for Gift Aid.
And there you have it, the Gift Aid rules and regulations for charities. It’s a lot to cover in one sitting, so well done for reaching the end of our guide. If you’re still unsure about what does or does not qualify for Gift Aid, then you’re in luck. Whether you’re a charity, CASC, church or company, we can help you make the most out of your fundraising with Gift Aid. Simply get in touch with our expert team to find out how we can help you make each donation count.