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Gift Aid on donation of proceeds of craft sale

Is this eligible for gift aid?

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My client, a higher rate taxpayer, held a successful craft sale in aid of a registered charity. She sent the proceeds of the sale to the charity by personal cheque and ticked the "gift aid" box.

I am unsure as to whether my client was correct to claim gift aid on her donation, as the money was derived from the sale of craft items, and was not direct donations.

If it turns out that the customers were asked for donations in exchange for craft items, would this be eligible for gift aid? Or not, as the money still represents a donation from a group of people rather than the individual taxpayer?

Any advice would be appreciated. My client is elderly, passionate about her chosen cause, and will be distressed if it turns out that she should not have gift aided the donation, so I want to advise her correctly and sensitively.

 

Replies (41)

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By Accountant A
03rd Jul 2019 00:57

How much are we talking about?

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Replying to Accountant A:
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By sparkler
03rd Jul 2019 07:43

Approx £2500.

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By paul.benny
03rd Jul 2019 06:19

You client has sold goods that she has made. She has then donated funds equivalent to the sale proceeds. That's a simple donation eligible for gift aid.

The buyers would not be able to claim gift aid on the amounts they paid as they received goods in return.

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Replying to paul.benny:
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By sparkler
03rd Jul 2019 07:44

Thank you, that is helpful.

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Replying to paul.benny:
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By Anita14
03rd Jul 2019 07:57

I can’t see anything in the original post to suggest that the lady herself made and donated all of the goods and it seems unlikely. If she did, I would agree with your statement, but was it so?

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Replying to Anita14:
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By WhichTyler
03rd Jul 2019 09:12

I think it is gift aidable; by whatever means she has ended up with a trading profit that is hers by right . If she then gives her profit to a charity, then it is gift aidable.

But note this: she has a trading profit: is she planning to declare that?

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RLI
By lionofludesch
03rd Jul 2019 09:09

She's paid tax on the £2500 she made on the sale, hasn't she ?

She's not thought "I don't need to declare this because it's all for the lovely charity I support", has she ?

You may have a different problem to the problem you originally thought you had.

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Replying to lionofludesch:
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By sparkler
03rd Jul 2019 09:44

No tax has been paid on the proceeds of the sale, as they were donated to the charity - my client was not running a business. The same would be the case for a sponsored swim, bake sale etc. My query is over whether gift aid can be claimed on these proceeds.

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Replying to sparkler:
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By lionofludesch
03rd Jul 2019 09:47

sparkler wrote:

No tax has been paid on the proceeds of the sale, as they were donated to the charity - my client was not running a business. The same would be the case for a sponsored swim, bake sale etc. My query is over whether gift aid can be claimed on these proceeds.

I understand that. The point is that it needs to be her money before she can gift aid it. If it's not her money, it's not her donation. The way to make it her money is for it to be her trade.

If she's not declared it as income, no she can't claim gift aid.

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Replying to lionofludesch:
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By sparkler
03rd Jul 2019 09:49

Ah, I see - thank you for explaining further. Yes, that is what I thought about it not being her income to donate, but rather the donations of others. But see my response below to Anita which contained a link to information on Macmillan coffee mornings - there doesn't seem to be anything in this which suggests that donations collected at a coffee morning (and presumably also a craft sale) cannot be gift aided. Or am I missing something?

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By Anita14
03rd Jul 2019 09:31

If it was advertised as “craft sale in aid of a registered charity” then there was no intention that the lady was trading to make personal gain so the money was never hers to donate, therefore not gift aidable.

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Replying to Anita14:
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By sparkler
03rd Jul 2019 09:42

This is what I thought. However, I came across some information published regarding Macmillan coffee mornings, where it was explained that if people donate money and are offered tea/coffee/cake, then this is allowable for gift aid. The same presumably applies to a craft sale, where customers can donate money and are offered a craft item.
https://www.gov.uk/government/news/jenrick-treasury-supports-bake-off-fever

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Replying to sparkler:
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By lionofludesch
03rd Jul 2019 09:50

sparkler wrote:
The same presumably applies to a craft sale, where customers can donate money and are offered a craft item.

You're walking on quicksand there.

Were these items priced ?

Could I donate 10p and get a lovely craft item worth £££s ? Or was there a minimum price ? Or, worse still, a fixed price ?

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Replying to lionofludesch:
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By sparkler
03rd Jul 2019 10:00

I need to check with the client, but I am fairly sure that it was only my client who created the craft items for the sale, and supplied the food and drink also offered. The sale made a lot of money - approx £2500 - and it's hard to believe that one person could have created sufficient craft items to make that much money on one occasion. So it seems that the attendees were in fact making large donations for any craft items they did receive.

Obviously I will check the facts with my client in due course, but I really wanted to be sure of my own understanding before I go back to her.

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Replying to sparkler:
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By Anita14
03rd Jul 2019 10:36

This puts a slightly different slant on it, but if the attendees all made large donations, you'd need to be sure they met the benefit rules - the item they received must be valued at less than 25% of the donation. Also they'd each need to complete a Gift Aid declaration themselves. If you are relying on the small donations scheme (GASDS), you would be declaring that no one paid more than £30. In both cases, the transaction is between the attendee and the charity, not the organiser.

The consequences of getting it wrong? HMRC can go back to the "donor" and get them to pay back the value of the Gift Aid claimed. The charity would be hurt more. If this donation makes up, say, 50% of the total GA claimed and is found to be ineligible, HMRC will deduct 50% of all future claims on the basis that the charity has inadequate processes in place to prevent this happening.

Hopefully the charity would have been aware of what this kind lady was trying to do and simply ignored the tick box.

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Replying to sparkler:
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By lionofludesch
03rd Jul 2019 12:29

sparkler wrote:
So it seems that the attendees were in fact making large donations for any craft items they did receive.

Sorry - but here's the issue. Your client can only claim Gift Aid for her own donations. She can't claim Gift Aid for money given to her to pass on to the charity. Obviously, it's open to the real donor to do that.

The problem is - in particular - that, as you say your client is a higher rate taxpayer, she'll be fraudulently getting a 20% kickback from HMRC in respect of the higher rate element of the gift aid claim.

Establish the facts and, if you need to have that difficult conversation with the elderly fraudster, have it soon.

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Replying to sparkler:
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By gainsborough
03rd Jul 2019 09:55

Apologies sparkler - was writing post below before I saw yours above!

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By gainsborough
03rd Jul 2019 09:52

There was a press release issued by the Government in Sept 2018 (re bake sales): https://www.gov.uk/government/news/jenrick-treasury-supports-bake-off-fever
and there is also something at 3.4.5 in the https://www.gov.uk/government/publications/charities-detailed-guidance-n....

I think there is a difference here on whether she declared the trade profits on her tax return,(as mentioned by lionofludesch), then made a donation, or not - in which case the above guidance would seem to suggest that gift aid would not be due.

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By lesley.barnes
03rd Jul 2019 10:12

Is it not the people making the donation that declare the gift aid rather than the host claiming it on their tax return?

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By Duggimon
03rd Jul 2019 11:49

The tax position is still in your client's favour, if she's paying tax on her profits but gift aiding the entire proceeds she's getting tax relief on her costs, which, so long as she isn't otherwise trading, will be at least £1,000.

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By sparkler
03rd Jul 2019 12:34

Thanks for all the replies. I believe that the gift aid box should not have been ticked, as I agree that the donations came from others, and should therefore have been gift aided by others (as you might do on a sponsorship form, for example). It is not for my client to declare gift aid on the full amount given to the charity.

I will indeed advise my client straight away that the donation should not be included in her schedule of gift aid payments for 2018-19, and will also recommend that she contacts the charity to advise that the gift aid box was erroneously ticked.

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By richard.snape
08th Jul 2019 11:51

She can only Gift Aid it if it was her money. If it was her money then the proceeds of the sale must have been income and as a higher rate taxpayer she has 40% tax to pay on it.
If however she (or others) donated the sale items to the charity then effectively only time was donated and there is no Gift Aid on that.
If the items were donated to the charity and being sold on its behalf then the payments by the purchasers would not be eligible for gift aid as they were payments in exchange for goods received and not donations, unless it could be shown that the value of the goods was negligible in comparison to the donation made.
So I dont believe Gift Aid is available unless she wishes to pay tax on the proceeds first.

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Replying to richard.snape:
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By lionofludesch
08th Jul 2019 12:10

I vaguely remember a case last year where some charity shop volunteer was so incensed by folk leaving stuff and not Gift Aiding it that she took it on herself to give her own Gift Aid details.

HMRC then popped round for a compliance visit and questioned the charity about her average of 15 donations a day (or something equally ridiculous).

She didn't go to jail or owt but the charity have to repay a four figure sum in Gift Aid and was "advised" to beef up its Gift Aid procedures.

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By richard.snape
08th Jul 2019 18:00

She can only Gift Aid it if it was her money. If it was her money then the proceeds of the sale must have been income and as a higher rate taxpayer she has 40% tax to pay on it.
If however she (or others) donated the sale items to the charity then effectively only time was donated and there is no Gift Aid on that.
If the items were donated to the charity and being sold on its behalf then the payments by the purchasers would not be eligible for gift aid as they were payments in exchange for goods received and not donations, unless it could be shown that the value of the goods was negligible in comparison to the donation made.
So I dont believe Gift Aid is available unless she wishes to pay tax on the proceeds first.

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Psycho
By Wilson Philips
08th Jul 2019 18:25

I don’t understand why people are trying to make a direct link between the profits and Gift Aid.

Whether she has (or should have) paid tax on the proceeds is one question. It’s completely unrelated ad to whether Gift Aid is available, provided that the basic conditions for Gift Aid are satisfied.

I make taxable profits of £100k. My uncle gives me a present of £3k. I give that £3k to charity and claim Gift Aid, despite the fact that I haven’t paid a penny in tax on it.

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Replying to Wilson Philips:
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By lionofludesch
08th Jul 2019 18:38

Wilson Philips wrote:

I don’t understand why people are trying to make a direct link between the profits and Gift Aid.

Because the profits aren't her money to give.

As I understand it, she held an event which raised £2500 on behalf of her favourite charity. That makes it already the charity's money. She can't give the charity money that's already the charity's money.

The alternative - and possibly the smart move - would be to declare the profits, claim £1000 trading allowance and gift aid the whole £2500 less the tax on it. But it depends on numbers we don't have.

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Jul 2019 19:03

The money doesn’t belong to the charity until she donates it to the charity.

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Replying to Wilson Philips:
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By lionofludesch
08th Jul 2019 19:19

Wilson Philips wrote:

The money doesn’t belong to the charity until she donates it to the charity.

Are you seriously saying that the people who attended the little old lady's event gave her money and she was free to do with it as she wished ? Including keep it for herself ?

I would suggest to you that that is untenable.

It's rather like somebody rattling a tin in the street, asking or donations for Lovely Charity and then going to the pub and spending the money on beer.

It no doubt happens - but we call them "thieves" in these parts.

It's not about when the money became the charity's money so much as about whether it was ever the little old lady's.

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Jul 2019 19:58

But they didn’t just give her money, did they? They purchased goods from her.

If someone asks me for £200 which they say they will pass on to charity then of course I would expect them to pass it on. If someone offers to sell me a camera lens for £200 and tells me that they’ll pass on the proceeds to charity I couldn’t give two hoots as to whether they do. In this case we’re probably somewhere between those two scenarios but a lot of assumptions are being made as to the arrangements.

Or try this one. Little old lady already has £2500 in her savings account. She banks the £2500 from her sale. She then withdraws £2500 and gives it to charity. Assuming that she’s paid sufficient tax is she entitled to Gift Aid? If not, why not?

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Replying to Wilson Philips:
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By lionofludesch
08th Jul 2019 22:25

Wilson Philips wrote:

But they didn’t just give her money, did they? They purchased goods from her.

So she's trading, then. She should pay tax on it.

Which is where we came in.

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Jul 2019 22:33

She may be trading, she may not be. The facts supplied are inconclusive. But whether or not she does, or should, pay tax on it has nothing to do with entitlement to Gift Aid.

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Replying to Wilson Philips:
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By lionofludesch
09th Jul 2019 09:05

Wilson Philips wrote:

She may be trading, she may not be. The facts supplied are inconclusive. But whether or not she does, or should, pay tax on it has nothing to do with entitlement to Gift Aid.

Well, if you're only prepared to look at the "gift" in isolation, that's the end of the matter.

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Replying to Wilson Philips:
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By lionofludesch
08th Jul 2019 18:43

Wilson Philips wrote:

I make taxable profits of £100k. My uncle gives me a present of £3k. I give that £3k to charity and claim Gift Aid, despite the fact that I haven’t paid a penny in tax on it.

Here's the flaw in your argument.

The little old lady made £2500 but, unlike you, she didn't declare them to HMRC. She paid no tax on them so can't expect HMRC to refund that tax to the charity as Gift Aid.

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Jul 2019 19:12

The flaw in your argument is that you’re matching the income with the donation. The only requirement is that the donor has paid sufficient tax to cover the amount claimed as Gift Aid. We don’t of course know whether that condition has been met. (And of course I never reported my uncle’s £3k to. HMRC - why would I?)

I might choose to sell all my camera equipment (and in theory although unlikely in practice might realise a profit). I will pay no tax on the proceeds but will nevertheless be entitled to Gift Aid them.

Whether or not the little old lady should pay tax on her profit is an entirely separate question to whether she can claim Gift Aid.

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Replying to Wilson Philips:
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By lionofludesch
08th Jul 2019 19:21

It's not entirely unconnected.

If she doesn't pay tax on it, it's not her money.

It's certainly not been gratuitously donated to her.

If you think so, we have a fundamental disagreement on the facts of the matter.

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Replying to lionofludesch:
Psycho
By Wilson Philips
08th Jul 2019 19:42

lionofludesch wrote:

It's certainly not been gratuitously donated to her.


I don’t think we disagree there. As noted above, the public handed over money in exchange for goods.

But since when was payment of tax a pre-requisite to ownership of money?

I might sell my BTL for £350k and fail to report it. Apart from, arguably, the tax element that I should have paid to HMRC it’s still my cash.

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Replying to Wilson Philips:
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By lionofludesch
08th Jul 2019 22:27

Wilson Philips wrote:
Apart from, arguably, the tax element that I should have paid to HMRC it’s still my cash.

Arguably ?

Nothing to argue about here.

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By Tax Dragon
09th Jul 2019 11:01

Lady makes some stuff, holds a sales event (there's a profit motive in doing that, by the way), undertakes to donate the amount in the till at the end of the event to charity.

The stuff that hasn't sold she keeps for another time (which may or may not be charitably inspired).

The question is, when does the sales money become the charity's/was it the lady's in the interval/who is making the donation(s)?

This scenario may distinguish itself from the coffee mornings where attendees make donations and that donated money is held on trust for a charity.

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Replying to Tax Dragon:
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By lionofludesch
09th Jul 2019 11:35

Tax Dragon wrote:

The question is, when does the sales money become the charity's/was it the lady's in the interval/who is making the donation(s)?

Sure.

But it's the answer we're interested in.

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By Tax Dragon
09th Jul 2019 11:49

Then we need to get the lady and her buyers in here.

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By sparkler
09th Jul 2019 12:11

This has generated a lot of discussion!

Further info which has come to light following my conversation on the subject with the client:

- She holds such a sale every year and has done so for many years. This has always been declared as a gift aid donation on her tax return. She considers the money to be her own to donate. (note this is the first year she has engaged me to do her tax return)

- Making craft items is a passionate hobby of my client. She uses expensive materials and does not make a profit from the sale, due to the costs of making the items in the first place. As she does not make any trading profit from the sale, she considers the proceeds to be her own money to donate as she wishes.

- Some of her customers at the sale make large donations of their own to the charity in question and complete a gift aid form, which is sent by the individual donor's personal cheque, to the charity along with my client's donation. These other donations are (correctly) not included on her gift aid claim.

- To dispel any doubt (as it has come up in a few posts) my client is a higher rate taxpayer due to having a high level of investment income (dividends from her high value share portfolio). She has paid sufficient tax on her income to cover the gift aid claim.

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