Is this trading income?

Auction/Donations

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A mutual sports club intends to hold an auction of items donated by members Should this be classed as trading income or can it be treated as donations?

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By FactChecker
20th Apr 2024 20:42

What's the context? VAT (or something else)?

I ask because - although this won't help you today - only a few days ago, 18th April, the govt published a Policy paper "Tax administration and maintenance summary: Spring 2024" ... which contained this proposal:

"In order to encourage charitable giving the government will consult on introducing a targeted VAT relief for low value goods which businesses donate to charities for the charities to give away free of charge to people in need."

FWIW (and back to your actual question), I suspect that "an auction of items donated by members" is two discrete transactions ... which will lead you to an answer.
But others may have more concrete answers to a question that has arisen a number of times in the past.

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Replying to FactChecker:
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By lionofludesch
20th Apr 2024 23:37

FactChecker wrote:

What's the context? VAT (or something else)?

I ask because - although this won't help you today - only a few days ago, 18th April, the govt published a Policy paper "Tax administration and maintenance summary: Spring 2024" ... which contained this proposal:

"In order to encourage charitable giving the government will consult on introducing a targeted VAT relief for low value goods which businesses donate to charities for the charities to give away free of charge to people in need."

FWIW (and back to your actual question), I suspect that "an auction of items donated by members" is two discrete transactions ... which will lead you to an answer.
But others may have more concrete answers to a question that has arisen a number of times in the past.

This does not seem to fit the scenario in the OP.

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By David Ex
20th Apr 2024 20:56

Who participates/bids in the auction?

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By lionofludesch
20th Apr 2024 23:36

People give assets to the organisation.

They realise those assets by auctioning them.

That is what I understand is happening.

It's not trading. There's no purchase of goods for resale.

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By Tax Dragon
21st Apr 2024 06:30

Classing something as a donation does not of course automatically render the receipt non-taxable.

And the question of whether this would be a [venture in the nature of] trade is inevitably more nuanced than whether there are purchases as well as sales. Assuming that the items auctioned have been/are/will be* donated specifically to sell/auction, there is clearly a degree of advertising and organisation about both the acquisition and disposal of those items. There's also a profit motive - remember your badges.

In short there may be a [venture in the nature of] trade here. But there's no way of knowing from the paucity of information you have provided. You'll just have to read BIM20000 onwards yourself. Much of it won't be relevant; some may be. Don't skip over pages 24792 onwards though.

* It's not clear to me whether your "donated" is past, present or future.

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By 356B
21st Apr 2024 11:46

To clarify, the donations will be made specifically for auction.
The club is VAT registered.
Only members will bid for items, and it is hoped substantial funds will be raised, as members will effectively be making donations as the items will be sold (hopefully) above their free market value.
BIM 24795 appears to grant freedom from tax on trading.
"The sale of donated goods at auctions, jumble sales or other venue is not regarded as trading. No liability to tax therefore arises on the profits from these sales."
Anyone like to comment on the VAT position?

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Replying to 356B:
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By FactChecker
21st Apr 2024 18:08

I'm now *more* confused ...

"it is hoped substantial funds will be raised, as members will effectively be making donations as the items will be sold (hopefully) above their free market value."

What does 'effectively be making donations' mean?
Are you suggesting the items to be auctioned will have been purchased (at MV) in order to enter them in the auction - and the 'hoped substantial funds' will only arrive IF the auction prices exceed the costs of purchasing the stock?
Because if so, it doesn't sound to me as though donations figure anywhere here.

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Replying to FactChecker:
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By 356B
21st Apr 2024 18:15

All items will have been donated by members. No purchases made.
i.e. A boat, (MV £500) might raise £3000.

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Replying to 356B:
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By FactChecker
21st Apr 2024 18:55

So even if the boat, for instance, sold for under MV (say £100) then there's still a 'profit' for the club (which is presumably not a charity else that would have been mentioned)?

Are there no overheads incurred in running the auction?

BTW have you read https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim24794 before you read BIM 24795?

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Replying to FactChecker:
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By 356B
21st Apr 2024 20:42

BIM 24794 is not applicable, and there are no overheads incurred.
Everything points to it not being trading.
My only concern is whether it should be included in "Sales" or "Donations".

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Replying to 356B:
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By FactChecker
21st Apr 2024 21:45

If you're happy that BIM 24794 is not applicable, then fine (you've got the details to back that up, and no-one on here does or doesn't).

But your original (brief) question was "Should this be classed as trading income or can it be treated as donations?"
Despite detours into VAT aspects within the thread (when you asked "Anyone like to comment on the VAT position?"), you now appear to be asking a bookkeeping question.

In which case I can't see how receipts from selling items that belong to the club (irrespective of how originally acquired) can be described as 'donations'.

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Replying to FactChecker:
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By lionofludesch
21st Apr 2024 22:46

FactChecker wrote:

In which case I can't see how receipts from selling items that belong to the club (irrespective of how originally acquired) can be described as 'donations'.

How do you arrive at that conclusion?

How hard have you looked?

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Replying to lionofludesch:
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By FactChecker
21st Apr 2024 22:53

Not hard at all ... so feel free to enlighten me (always happy to learn even on a Sunday night).

- asset is owned by club;
- club sells asset to public;
- club receives sale proceeds and books that as a donation - how?

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Replying to FactChecker:
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By lionofludesch
21st Apr 2024 23:33

FactChecker wrote:

Not hard at all ... so feel free to enlighten me (always happy to learn even on a Sunday night).

- asset is owned by club;
- club sells asset to public;
- club receives sale proceeds and books that as a donation - how?

You missed out

- asset is donated to club

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Replying to lionofludesch:
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By FactChecker
22nd Apr 2024 00:01

Late night brain now engaged ... but so?

I bought an LP in 1970 for £2.50 and discover that it can now be sold on Discogs for upwards of £3,000 ... but decide instead to donate it to this club for them to auction and for them to keep the proceeds.

If however I'd sold it (in order to donate the proceeds to the club), then I may be liable to CGT (as I'm selling quite a lot of these rarities) - but the club can indeed book a donation.

Conversely (as per OP's scenario), I donate the LP to the club - and they now possess an asset with an MV of £3,000 (but I pay no CGT). They decide to place the LP in their next fund-raising auction and two bidders compete strenuously, with the winner coughing up £5,000.

I'm sure it's obvious, but my brain is not currently seeing how that £5k gets booked as a donation rather than a sale (of an asset)?

As with most accounting (and all VAT) questions, I tend to unpick things to their discrete transactions - so are you, for instance saying, that there'd be a difference if the LP failed to reach its minimum bid at the auction for which it was donated - and was held over to a later auction (at which it finally sells)?

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Replying to FactChecker:
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By 356B
22nd Apr 2024 09:11

If a member donates a boat to the club (more realistic than an LP, value£3000) it would be recorded as a donation and included in Fixed Assets. What's the difference between that and members making numerous similar donations which are then sold? We're not concerned with potential tax implications, as there are none.

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Replying to 356B:
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By Tax Dragon
22nd Apr 2024 09:40

356B wrote:

We're not concerned with potential tax implications, as there are none.

Probably no CT, but have you considered VAT?

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Replying to Tax Dragon:
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By 356B
22nd Apr 2024 09:52

I did mention VAT, but no one responded. That's partly why I asked whether it's trading income or not.

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Replying to 356B:
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By FactChecker
22nd Apr 2024 14:11

"What's the difference between that (donating an item that becomes a Fixed Asset) and members making numerous similar donations which are then sold?"

None - but that's not the question that you first posed, which was:
"Should this be classed as trading income or can it be treated as donations?" ... where 'this' is presumed to refer to the funds received from disposal of those assets (not the recording of their acquisition).

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Replying to FactChecker:
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By David Ex
22nd Apr 2024 10:10

FactChecker wrote:

I bought an LP in 1970 for £2.50 and discover that it can now be sold on Discogs for upwards of £3,000 ... but decide instead to donate it to this club for them to auction and for them to keep the proceeds.

If however I'd sold it (in order to donate the proceeds to the club), then I may be liable to CGT (as I'm selling quite a lot of these rarities) - but the club can indeed book a donation.

Paul Hamlet admonished me for saying the mutual sports club wasn’t a charity. If that’s the case, do you not create a tax liability for yourself if you gift and so dispose as less than MV?

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Replying to David Ex:
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By FactChecker
22nd Apr 2024 14:01

I did wonder as I wrote that ... but decided to skip over that aspect in the interests of (supposedly) keeping the thread on track.

FWIW I don't know why 356B said: "more realistic than an LP, value£3000" ... there are a LOT of old '60s albums (if in excellent condition) that are worth over £1k now, and a surprising number in the range I used for illustration.
[There's one that I refused to buy in 2000 at the 'ridiculous' price of £750 that now goes for a min £12k!]

But I'm still not sure where OP is trying to head with all this ... having ignored my first post enquiring if this was VAT related ... then, after belatedly confirming that it was, changed tack and said it was just an accounting 'treatment' issue ... but has now come back (with TD's prompting) to say it's really a VAT question.

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Replying to FactChecker:
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By 356B
22nd Apr 2024 16:59

VAT would only be involved if it's trading income. As it's deemed not to be trading income (per HMRC) I don't think it's relevant, but I'm open to other opinions.

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Replying to 356B:
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By Tax Dragon
22nd Apr 2024 17:40

I normally don't comment on VAT due to my absolute ignorance on the subject. I didn't even know that

356B wrote:

VAT would only be involved if it's trading income.

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Replying to Tax Dragon:
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By lionofludesch
22nd Apr 2024 18:10

Tax Dragon wrote:

I normally don't comment on VAT due to my absolute ignorance on the subject. I didn't even know that

356B wrote:

VAT would only be involved if it's trading income.

Worth emphasising the point that the income doesn't have to be liable to Corporation Tax for VAT to be payable. Hence in your traditional members' social club, profits from bar sales might not be liable to CT but they're definitely part of your taxable turnover.

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Replying to FactChecker:
paddle steamer
By DJKL
22nd Apr 2024 18:24

Some charities accept goods from registered punters and are deemed to be selling them on behalf of the punters who then make a gift aid donation equal to the price realised.

I have one such card for St Columba's Hospice, Edinburgh, they send me a statement once a year saying what realised from my donations (card has a barcode)and if they do not hear from me the value realised is my donation, my October 2022 statement was only about £60 (22/23 return) , my Oct 23 one was nearer £350. (donated a lot of books- 2 carloads)

Could they therefore argue, if such a scheme was set up, that the receipts re the donations later sold qualify for Gift Aid?

Edit- apologies, I thought it was a charity, I was mistaken.

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Replying to 356B:
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By lionofludesch
22nd Apr 2024 13:30

356B wrote:

All items will have been donated by members. No purchases made.
i.e. A boat, (MV £500) might raise £3000.

These people are trading with themselves, are they not?

I'd question your analysis that a boat, sold for £3000, has a MV of £500. If an open auction isn't an indcator of MV, I don't know what is. As a rider, it might be said that £3000 is a minimum, given the restricted nature of the bidding group.

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Replying to lionofludesch:
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By 356B
22nd Apr 2024 16:56

It's not an open auction, it's only open to members, who may wish to make donations by overpaying for items.

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Replying to 356B:
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By lionofludesch
22nd Apr 2024 17:44

356B wrote:

It's not an open auction, it's only open to members, who may wish to make donations by overpaying for items.

So you're saying that they won't overpay if it's open to the public?

If not, what are you saying?

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Replying to lionofludesch:
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By 356B
22nd Apr 2024 19:34

The question doesn't arise. It's a closed auction.

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Replying to 356B:
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By lionofludesch
22nd Apr 2024 20:26

356B wrote:

The question doesn't arise. It's a closed auction.

It matters in connection with your point about market value.

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Replying to lionofludesch:
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By 356B
23rd Apr 2024 10:32

I don't see how. Please explain your point in more detail.

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Replying to 356B:
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By FactChecker
22nd Apr 2024 17:50

OK, I've been trying to stick to accounting- or tax-related aspects ... but I'll bite.

If they want to make donations then why, as per David Ex's comments, don't they do just that (without the need for muddying the water with an auction in the middle of the process)?
And, as per lion's comments, why would whatever amount someone is prepared to pay at auction be anything other than MV (even a rare item with 2 bidders that goes for double the estimate is only setting a new MV)?

Is there something 'special' about this club/its members/the donated items/the auction to which we're not privy but is somehow highly relevant to what's going on?

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Replying to FactChecker:
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By lionofludesch
22nd Apr 2024 17:58

FactChecker wrote:
<

Is there something 'special' about this club/its members/the donated items/the auction to which we're not privy but is somehow highly relevant to what's going on?

Well, boats are mentioned. Might be significant. Might not.

I'm just starting to say things I've already said so I don't have anything to add.

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Replying to FactChecker:
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By FactChecker
22nd Apr 2024 23:08

And why keep re-emphasising that "It's a closed auction" (public not allowed to bid) - which in general auction terms is NOT the way to maximise resulting funds?

If OP can't be open about either the objectives or exactly what's going on, then any 'advice' on here is as valueless as that chocolate teapot I just left by the bar-fire.

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Replying to FactChecker:
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By 356B
23rd Apr 2024 10:37

It's a closed auction because it's being held in the clubhouse and only members can attend, hence my belief that if it is "trading" it's mutual trading.
There are no other objectives here, I just want to know how to best treat the income.

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Replying to 356B:
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By FactChecker
23rd Apr 2024 12:42

But ... yesterday at 19:44 you said "BIM 24795 states that it's not" (mutual trading).

With all these contradictions floating around ... I'm out.

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Replying to FactChecker:
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By 356B
23rd Apr 2024 17:01

"If it is, there's VAT to pay."
The response was in answer to this statement.

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Replying to 356B:
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By lionofludesch
23rd Apr 2024 12:54

356B wrote:

It's a closed auction because it's being held in the clubhouse and only members can attend, hence my belief that if it is "trading" it's mutual trading.
There are no other objectives here, I just want to know how to best treat the income.

I've no idea what the question is any more.

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Replying to 356B:
paddle steamer
By DJKL
22nd Apr 2024 18:29

Surely mutual trading????

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Replying to DJKL:
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By lionofludesch
22nd Apr 2024 18:39

DJKL wrote:

Surely mutual trading????

If it is, there's VAT to pay.

I don't think it is, mind you.

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Replying to lionofludesch:
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By 356B
22nd Apr 2024 19:44

BIM 24795 states that it's not.

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By David Ex
21st Apr 2024 19:54

Better idea. Everyone meets on the carpark buys what they want and the sellers give the charity a cash donation. Sometimes the easiest ways are the best!

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Replying to David Ex:
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By paulhammett
21st Apr 2024 20:55

It’s a mutual sports club, not a charity.

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Replying to paulhammett:
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By David Ex
21st Apr 2024 21:43

paulhammett wrote:

It’s a mutual sports club, not a charity.

Better idea. Everyone meets on the carpark buys what they want and the sellers give the mutual sports club a cash donation. Sometimes the easiest ways are the best!

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Replying to Willowwo:
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By Bobbo
17th May 2024 13:25

Responding to your own comment three weeks later, repeating part of that comment and then including a link to guidance on TOMS which of all things mentioned in this thread is probably the least relevant. Incredible.

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Replying to Bobbo:
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By lionofludesch
17th May 2024 14:49

Bobbo wrote:

Responding to your own comment three weeks later, repeating part of that comment and then including a link to guidance on TOMS which of all things mentioned in this thread is probably the least relevant. Incredible.

Well spotted.

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Replying to lionofludesch:
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By 356B
17th May 2024 15:51

Willowwo seems to have disappeared.

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By lionofludesch
17th May 2024 16:18

356B wrote:

Willowwo seems to have disappeared.

Not surprised.

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