HMRC has published updated guidance notes for charities, together with a set of updated Gift Aid templates for the use of charity shops.
The guidance notes explain how the tax system operates for charities, including how to set up and run a charity.
The latest changes are all in Chapter 3 of the guidance notes, which is about Gift Aid. In particular HMRC has updated the section which relates to charity shops.
Charity shops will often ask people who donate items to make a Gift Aid declaration. Charities cannot claim Gift Aid on donations of physical items, such as clothes or books, only on donations of money.
However, it is possible for charities or community amateur sports clubs to claim Gift Aid on donations of the income from the sale of supporters’ goods. To do this, the donor individual must retain legal and beneficial ownership of the goods until they are sold – ie, the charity is selling the goods as the individual’s agent. When the items have been sold the individual can then donate the proceeds. The usual Gift Aid conditions apply, in particular that the donor must have sufficient tax liability to cover the tax reclaimed under Gift Aid.
HMRC’s guidance sets out three different schemes under which charity shops can operate Gift Aid for more detail, see the guidance notes at Chapter 3.42: Claiming Gift Aid when goods are sold by, and the proceeds gifted to, charities .
HMRC requires charity shops to make the selling procedure and the Gift Aid conditions clear to potential donors. Shops can use the template letters to do this (see list below).
It does sound as though HMRC may be planning to take a closer look at charity shops that operate Gift Aid schemes for donated goods and at donors who make Gift Aid declarations but do not pay sufficient tax to cover the donations.
Guidance: Gift Aid claim template letter: standard method
This template is for charity shops to use to advise donors of the proceeds of sale under the standard method.
Guidance: Gift Aid template letter for the end of year: method A
This template is for charity shops to use to advise donors of the proceeds of sale under method A at the end of the year.
Guidance: Gift Aid template letter for sales above the £100 limit: method A
This template is for charity shops to tell donors if the proceeds of sale under method A are more than £100 and they make more sales.
Guidance: Gift Aid template letter for the end of year: method B
This template is for charity shops to use to advise donors of the proceeds of sale under the method B at the end of the year.
Guidance: Gift Aid template letter for sales above the £1,000 limit: method B
This template is for charity shops to tell donors if the proceeds of sale under method B are more than £1,000 and they make more sales.
For more information or if you have any queries please contact Lesley Malkin.
