CHARITIES - 04.02.2014

What’s the liability of donations and fundraising?

Donations

A freely given donation for which nothing is expected in return is non-business income and outside the scope of VAT. In addition, charities might receive grant funding to support their activities; which is also outside the scope of VAT if it’s freely given, with nothing supplied in return.

Conditional. However, if the terms and conditions of the grant mean that the funding is given in return for goods or services supplied by the charity, then this may count as a taxable business activity and VAT might be payable on the funding income.

Advertise it. The sale of advertising space is usually a standard-rated business activity. However if 50% or more of the total number of ads in the publication are placed by private individuals, you can treat all the sums received as donations and therefore outside the scope of VAT. In addition, advertising space supplied to another charity can be zero-rated.

Fundraising events

When an organisation holds an event to raise funds it will normally make taxable business supplies and its income may be liable to VAT, for example, admission charges, sales of goods, catering, etc. However, there is a VAT exemption for specific types of fundraising event held by certain types of organisation. In addition to charities, the following bodies may qualify for the fundraising exemption: (1) trade unions and other staff associations; (2) professional associations; (3)  associations for the advancement of knowledge etc.; (4) associations for making representations to government on business and professional interests of members; (5) bodies that have objects which are in the public domain and are of a political, religious, patriotic, philosophical, philanthropic or civic nature; (6) non-profit-making bodies established for the principal purpose of providing facilities for people to take part in sport or physical education; and (7) certain non-profit-making cultural bodies managed and administered on an essentially voluntary basis by people who have no financial interest in its activities. Tip 1. A branch of a charity may not be a separate charity to which the exemption applies - this will depend on how the branch and its parent are set up. Tip 2. A fundraising event is clearly organised and promoted primarily to raise money for the benefit of the charity or qualifying body. People attending or participating in the event must be aware of its primary fundraising purpose. Add appropriate wording to the tickets saying this event is to raise funds for XYZ.

All or nothing

If an event qualifies for the VAT exemption, then the exemption is mandatory. You can’t charge VAT on supplies that are normally taxable at the standard rate. Trap. As the fundraising event is an exempt activity you won’t be able to recover any VAT on associated costs. Tip. Where supplies can be either zero-rated or exempt, the zero-rating takes precedence; therefore, goods that are normally zero-rated, such as brochures, books, children’s clothing, etc., can remain so even when sold at a qualifying event. This means that if you’re VAT registered you can recover the VAT you pay on purchases relating to those zero-rated sales.