Winter 2013 Newsletter
Charity shops and Gift Aid
Many people make donations of unwanted clothes and other goods to charity shops. If you have done this in recent years you will almost certainly have been asked by the staff in the shop if you want to Gift Aid your donation. This may come as a bit of a surprise because you were of the opinion that Gift Aid applied only to gifts of money! Actually you were quite right - Gift Aid is only applicable to gifts of money. This does not mean that what the charity shop is asking you to do is to take part in some tax avoidance scheme but there are some misconceptions on both sides about what is actually happening here.
What HMRC have been prepared to do is to accept that if the charity shop is actually selling goods on behalf of the donor, and the donor is prepared to allow the shop to retain the cash proceeds then those cash proceeds can be subject to a Gift Aid claim. That of course helps the charity and can help the donor if they are a higher or additional rate taxpayer. Unfortunately it is clear that many volunteers in charity shops do not understand the system and that could lead to some problems for the charity concerned.
HMRC recently updated their guidance to charities on how to deal with these matters. The guidance is on the HMRC website at www.hmrc.gov.uk/charities/guidance-notes/chapter3/sectionf.htm. It is strongly recommended that if you are involved with a charity shop that you look at this detailed guidance and ensure that your procedures are compliant with it. Failure to do so could mean that HMRC take action to recover any tax wrongly claimed.
The guidance makes it very clear that what is happening in these situations is that the shop is selling the goods as agent for the donor who can actually do what they like with the proceeds. The shop should make clear to the donor the implications of the Gift Aid process.
Charity shops are being given different ways in which they can operate the Gift Aid scheme. There is not space in this article to cover all the details but the essential processes are:
- the donor gives a Gift Aid declaration when they donate the goods
- the shop marks the goods so that they can be identified as coming from the donor
- the shop will normally advise the donor of the net sale proceeds before a Gift Aid claim is made unless one of two methods (helpfully referred to as Method A and Method B) are used.
Method A involves the charity writing to the donor only where the total sums donated in a year exceed £100. Method B will be used where there is a trading company running the shop and replaces the limit with £1,000 as an annual sum. In both cases the details of the scheme must be explained to the donor at the time they donate the goods and the shop must have procedures in place to be able to track the sale of the goods and record the amounts for each donor so that letters can be sent out if those limits are exceeded. If a donor asks for details of the sums actually received by the charity so that they can make a claim for higher rate relief, then that information must be supplied to them.
Given that sales in charity shops are now approaching £1billion annually there are clearly significant benefits to charities in seeking Gift Aid but those benefits will be lost if basic procedures are not followed. The message from HMRC is to take the time to get the procedures right and the benefits will flow.