Charities – Donated Goods – Gift Aid – is there a sting in the tail?
On BBC Radio 4’s MoneyBox programme on Saturday, March 22, 2008 reference was made to the use by charities of the Gift Aid rules for direct taxation. Under these rules taxpayers can sign a form that allows charities to claim from HMRC the tax paid by the donor – this means the charity claims something like 28p from HMRC for every pound donated by a taxpayer.
They have now worked out that if taxpayers appoint the charity to sell their goods as agent and donate the proceeds they can claim Gift Aid relief on the proceeds. At first sight it might appear that they have created a problem because the sale of donated goods is zero-rated, but non-donated goods would take their normal VAT liability – mainly standard rated. This, however, overlooks the fact that many ‘donors’ will be private individuals so outside the scope of VAT on sales they make. So, everything’s looking rosy?
Not quite. There is a possibility that HMRC could attack the charities’ recovery of input VAT. The reason for this is that the previously zero-rated sales income has now become donations. Donations that are freely given are outside the scope of VAT without a right to recovery any associated input VAT. In this instance the associated input VAT would be some or all of the costs of running the shops.
In the MoneyBox programme the charity said it was incurring costs of about 10% of the additional amount it was raising. What it didn’t say was how that cost was made up. It implied that it was made up of training and other administrative costs. No mention was made of unrecoverable input VAT. I wonder if they’ve looked at the implications of scheme on their VAT recovery. I hope they have, otherwise HMRC will have a wonderful time clawing back some of the gift aid benefit the charities are gaining as unrecoverable input VAT.
If you want to listen to the programme you can download it from the BBC website as a podcast, or read about it by clicking on this link.
Related posts:
