Gift aid is a way in which the Government encourages the taxpayer to support charities and similar organisations. Simply put, you make a donation and HMRC will add 25p per £1 that you give. If you’re lucky enough to be a higher rate tax payer, you can get relief from higher rates as well. So far, so good.
Now let’s look at the reality. HMRC is responsible for administering the gift aid scheme, and it is determined to prevent abuse of the system. No problem there.
BUT (and you knew that was coming) the roles can become complex. Successive governments have widened the scope of the relief – which is good… BUT every concession is hedged around by anti-avoidance rules. Now charities are often run by well-meaning volunteers who want to do their best for their charity. Most of them are not tax experts (no surprises there!).
Let’s try an example: gift aid is only allowed if there is no benefit, or only a small benefit to the person making the gift. That’s reasonable. The value of the benefit has to be less than 25% of the value of the gift, if the gift is £100 or less; it is capped at £25 on gifts up to £1,000; and different limits apply above that. Now we have to value the benefit – say the donor is offered a cream tea. That would sell for £10, say, even though its’ cost to the charity might be £4. A gift of £25 would therefore not qualify as £25 x 25% = £6.25 less than the retail value of the cream tea.
Now let’s look at admission charges. If you go to many heritage attractions you may be asked to gift aid your entrance fee. The benefit of admission doesn’t count as a benefit, if it is to allow you to view heritage property. BUT (and that word keeps cropping up) the charity must either give you a year’s access without further entrance fee,
or it must charge you at least 10% more. Simple it is NOT.
Generously the Government will allow gift aid on relevant entrance monies, provided they are paid for the benefit of the taxpayer and his family. So: a couple in their 70s arrives at the turnstile with a bloke in his 40s, two women of similar age and seven younger people aged between 2 and 20. Is this a family group? It may be. You are issuing entrance tickets – do you allow Grandpa to ‘gift aid’ the entrance monies? They want a guide book for £5 – don’t let them gift aid that. While you sort this out, the queue at the turnstile is growing larger and more irritable. Simple it is NOT.
There is, of course, a sign setting out the conditions for making a valid gift aid donation. You hope it is in the latest form approved by HMRC. They change it periodically – supposedly to make it simpler. The harassed volunteer draws it to the attention of the visitor, as he must. The visitor has forgotten his credit card, so his wife pays (or as we say ‘donates’). Is she a taxpayer?
The taxpayer then pays on a company credit card. Is he, as an individual making a donation? OR is it a perk provided by his company? The poor old charity volunteer has to sort that one out! Simple it is NOT.
There’s more! BUT I suspect you’ve got the idea by now. Governments want you to support charity, but make it very difficult for the charity to comply with a raft of rules.
We recently defended a charity which was subjected to a three year audit by HMRC. All these points came up and more. Not surprisingly, the charity had made some mistakes. The eventual amount to pay back was about 10% of the amount claimed. The volunteers had done their best, but it wasn’t good enough for HMRC.
The moral of the story: take care when you accept gifts from strangers!
For further advice about Gift Aid or charity accounting, please contact your local Moore adviser.