Charity Tax Reclaim Services

Most charities will be quite capable themselves of processing claims for tax under Gift Aid – the forms aren’t complicated and there is cheap software available. See our reference page. But if you have loads of donations and few staff or volunteers, you might want somebody else to do the transfer of the information (name, payment amount and date) on to the claim form.

Other services offered include Give As You Earn (payroll giving) admin, facilities for donors to make all their charity giving tax efficient e.g. an account from which you make ‘cheque’ or card payments. The resulting payments can be quite time consuming to process: record donation, put on claim form or fill in voucher details, send off, reconcile payment when received. You need to make sure you don’t reclaim tax (eg by Gift Aid) on donations made by one of these facilities, as it will already have been reclaimed. Also check that these payments are not for merchandise, publications or member benefits (except where this falls within the set allowances). Donors can easily get confused on this if order forms aren’t clear.

  • Charities Aid Foundation (CAF) is the most well-known, and advertises its various services for charity givers widely. They offer all sorts of services, as well as promotional material. Phone 0800 993311
    • Charities may receive vouchers, card payments or Standing Orders which need to be processed via CAF. You will usually have to register your charity with CAF to benefit.
    • Run Legacy Account and Personal Charitable Trust facilities for those with substantial personal assets.
  • Liverpool Charity and Voluntary Services has a Charity Accounts service, an alternative to CAF. 14 Castle Street, Liverpool, L2 0NJ, phone 0151 236 7728.
  • Charities Trust Payroll giving and corporate donation management agency. Registered charity which charges a set administration fee of 25p (at spring 07), with any surplus money distributed amongst UK charities annually. Suite 22, Century Building, Brunswick Business Park, Tower Street, Liverpool. L3 4BJ.
  • Payroll Giving in Action puts various charities in front of potential employers/employees. 11a Litchdon St, Barnstaple, N Devon, EX32 8ND, phone 01271 329001.
  • Sharing the Caring / StC Payroll Giving “the workplace giving experts”.
  • Stewardship# Payroll giving etc. Offices in Chelmsford and Loughton (both Essex), phone 08452 26 26 27.
  • (South West) Charitable Giving.
  • Your accountants or solicitor can do the tax reclaim for you, at a cost.

Charity Tax Reclaims

aka Tax Efficient Giving

Gift Aid, Deeds of Covenant, Payroll Giving …..

The HM Revenue & Customs website, the key source , has been incorporated into gov.uk (Jan. 2015) – check the Services and Info page.

Leaflets you might want to get:

  • Giving to charity by businesses (IR64),
  • Giving to charity by individuals (IR65),
  • Giving Shares and Securities to Charity (IR 178).

The Basics

NB Please note that rates have changed since this section was written.

The limit on Payroll Giving was abolished from April 2000 (previously £1200 per employee), and to promote the scheme the government is to add 10% on such donations, during the following 3 years. Give As You Earn (GAYE) can be operated on behalf of any non-profit organisation which has been recognised as such by the Inland Revenue. You have to operate the scheme via an approved agency.

The days are numbered for Deeds of Covenant as the revised Gift Aid system has no minimum limit (previously £250). There are potential traps and admin nightmares around values of benefits received in exchange for donations (e.g. newsletters or perhaps for larger donors, special seats at events or chances to meet celebrities) – see the guidance notes. Phone and internet giving can also be included – but you have to send a written confirmation which includes a chance for cancellation.

Reclaiming tax (which is income tax or capital gains tax) is done at the standard rate, currently 22%. It is easy to assume you claim 22% of the donation. Not so! Remember, the 22% has effectively already been deducted, so what you are claiming is 22% of the higher amount BEFORE that deduction. The maths is: tax reclaim = donation x (100/(100-22)), which is the same as adding 28% (rounded down). There are bound to be queries on this from time to time! IT for Charities have written a little bit of Javascript which you can put on your website (for free) to show how much a donation increases by.

There is a specialist Inland Revenue branch dealing with charity tax issues, in particular income tax repayment claims. Still often referred to as FICO, its now officially Inland Revenue Charities. Forms and procedures have been simplified, but with greater security, from April 2000.
– IR Charities (Repayments), St John’s House, Merton Road, Bootle, Merseyside, L69 9BB, phone 0151 472 6036/6037 (Gift Aid) or 0151 472 6029/6053/6370/6371 (Payroll Giving) or 0151 472 6046 (Giving shares).
– The reclaim work of the Scottish office is being transferred to Bootle, June 04.
– Local rate helpline 08453 02 02 03.

Admin

Please now see the official Gift Aid information from HMRC, as the following is out-of-date.

A crucial element of your systems is having an ‘audit trail‘ so that it is possible to go from the claim you submit to the original records and documents both for the money given and the Gift Aid declaration (you may have obtained a ‘global’ declaration covering any donation from 6th April 2000). See below about filling in and submitting claim forms so that Inland Revenue can process them. The new form is now available, and will be sent automatically if you submit a tax reclaim, under the ‘old’ scheme or otherwise.

Relevant extracts from the Getting Britain Gift Aid Guidance document:

“8.2 You should use the existing claim form R68 and schedules to reclaim tax for:
•Gift Aid donations and covenanted payments by individuals received before 6 April 2000
•covenanted payments by individuals received on or after 6 April 2000 but falling due before that date
•Gift Aid donations and covenanted payments by companies received before 1 April 2000.”

“8.4 You will no longer have to complete separate schedules for Gift Aid donations and covenanted payments – in future there will only be one type of schedule for all donations. You will have to enter the following details on the new schedule for each donor:
•the donor’s name
•the date of the donation, or, where the claim covers more than one donation by the donor, the date of the last donation
•the total amount of donations by the donor on which you are claiming in the schedule.

8.5 You will have to complete a separate schedule for each tax year, or part tax year, included in the claim. It will no longer be necessary, however, for you to calculate the tax relating to each donation separately. You will simply be able to calculate the total tax reclaimed for all the donations shown on each schedule.”

8.6 ……..Remember – do not reclaim tax for any donations by companies received on or after 1 April 2000.

“8.7 You can start making your tax reclaims immediately from 6 April 2000.

8.8 In the case of covenanted payments falling due on or after 6 April 2000, you need no longer wait until after the due date has passed before reclaiming tax – you can reclaim tax at any time after you receive the payment.”



Software for claiming back tax

Although Gift Aid isn’t too complicated to administer (once you have sorted out any benefit issues), smaller charities may want help.

  • GATS (Gift Aid Tax Software) will help record Gift Aid declarations and produce claims. Now also have a ‘bulk’ version, for quickly processing such items as sponsored events income, where you may not want to keep detailed records of donors. GATS v 3.7 will handle the new HMRC R68 Claim forms that must be used before 31st December 2007. £79.99 (incl. delivery and VAT at summer 07) from Cleaford Services, 46 Hazell Road, Farnham, Surrey, GU9 7BP, email: cleaver@cleaford.co.uk
  • Donations Coordinator comes from Data Developments – ‘software for churches and charities’. They’ve been working to make their programs much more generic and not so church-focused. Currently more sophisticated than GATS, and has some import and export facilities. £159 at spring ’13. Data Developments, Wolverhampton Science Park, Stafford Road, Wolverhampton, WV10 9RU, phone 01902 824044.
  • Gift Aid Manager is from Orchard Software. Developed in Microsoft Access, it appears to have all the necessary features in a logical format. £99 incl p&p, including 3 months technical support. Demo version can be downloaded. Email: giftaid@ntlworld.com
  • Mijan Consulting GiftAid Recorder Keeps a record of donors and donations and automatically completes the form R68(GiftAid). £30 inc. VAT. Developed by an experienced Charity Treasurer who uses it himself. Trial version available. Email: giftaid@mijan-consulting.co.uk

Many online fundraising services, if UK based, will also have Gift Aid facilities.

Other resources

We can’t cover all the possibilities for registered charities here. So, as well as HM Revenue and Customs sources:

Taxation of Voluntary Organisations

Basic issues

Many voluntary organisations assume that they are not subject to tax. Unfortunately, there is a whole bunch of stuff out there which can catch you out. With the various agencies concerned generally having targets to increase their revenue, working on the basis of ‘surely they aren’t going to be nasty to a good cause like us’ is dodgy. Don’t panic if you are just setting out – the advice lines, leaflets etc. are much more user-friendly than they used to be (although patience is often necessary). Clarifying potential pitfalls at the start will ensure you don’t end up liable, personally or as an organisation.

The HM Revenue and Customs website has a Charities section. Also see special section for Community Amateur Sports Clubs CASCinfo may also be worth a look.

Material below, especially on Corporation Tax, needs some updating of details.

Expenses (and Income Tax)

See Pay and Expenses page for how to handle staff issues on this.

Volunteer Expenses can be a trap for the unwary. Even some ‘professionals’ in this area get it wrong, and could be laying your organisation open to a tax liability, which might include Inland Revenue inspectors imposing penalties. The Inspectors themselves, who come from local offices, will often not be clear about the rules here, and should be persuaded to check them out before proceeding with an audit!

The basic point to note is that as soon as you pay volunteers more than actual costs you are entering taxable territory, and you may end up paying tax on travel costs too (employees would be taxed on any payment for travel to their regular place of work). Volunteers should produce receipts for expenses, even for such things as lunch if possible (perhaps photocopy their travel card, but get at least one original on file after it has been used). See Volunteers and Law for more on travel and volunteer drivers.

Flat rate reimbursement has led to at least one organisation being caught by National Minimum Wage legislation, such that volunteers turn into employees who have to be paid the minimum. As we type (May 02), there is still some lack of clarity around residential volunteers. Those placed via an agency appear to be most clearly OK to have accommodation costs paid, plus ‘pocket money’, though the latter should only be a ‘minor consideration’ and more appropriate when based some way from home, to allow for limited ‘social interaction’. See the Minimum Wage pages on Gov.uk.

Trustees/Management Committee members will often be classed as Directors (particularly if it registered as a limited company) and some Inspectors will then expect annual returns. As long as they aren’t paid more than actual expenses, these should not be necessary. Note that you are likely to be obliged to declare the total of committee expenses in the audited accounts (especially for registered charities), and perhaps give more detail if there are any relationships or exceptional items.

Corporation Tax

It is generally accepted that charities don’t pay Corporation Tax, but you may need to exchange some correspondence with the tax office on this. Those using trading companies need professional advice, or to read up the literature, to get things right. Non-profits not registered as charities ought to be able to persuade the Inland Revenue just to impose it on bank interest/investment income, as long as trading (for profit) isn’t a significant activity.

The need for trading subsidiaries for smaller charities will be reduced by the Budget 2000 measures. Up to £50,000 of ‘trading’ activity by the charity will be permitted, with a new tax relief to exempt all profits of small trading and other fundraising activities. The relief will apply where the charity has a reasonable expectation that the turnover will be either
– no greater than £5,000, or
– if greater than £5,000 but no more than £50,000, less than 25% of the total gross income of the charity. For example, if non-charitable trading turnover is £45,000, to qualify for tax relief, the total gross income of the charity must be greater than £180,000.

Also from April 2000, charity subsidiary companies will obtain tax relief on Gift Aid donations they make to their parent charity, up to nine months from the date of payment. This means that the company will simply have to make a payment to the charity equal to its taxable profits, within 9 months of the end of its accounting period, and current Deeds of Covenant will disappear.



VAT Issues

This is a complex area. There has been some simplification as a result of the Charity Taxation Review, but it is still not straightforward. Those mainly relying on grants and donations will not have to worry, as this is seen as ‘non-business’ (there is no exchange of money in return for specified goods/services). See HMRC site for current level of business turnover where VAT registration becomes compulsory (was £52,000 April 2000) – as well as charging VAT on ‘sales’, you will then also be able to reclaim VAT to some extent. It is not always straightforward to identify Business Turnover, as for instance a membership subscription may include a donation element, which doesn’t count for this test.

VAT issues to check out include:

  • membership subscriptions – how much of these are for something in return (eg magazine, events)?
  • sponsorship is trading (i.e. a business activity), except in a few limited cases.
  • areas like training, publications, room hire and medical supplies have very specific rules.
  • are grants really not in exchange for any consideration? Normally a report on the project will be treated as insignificant, but it can get nasty where it starts looking like a contract to provide services.

Zero-rated VAT now covers (from April 2000) to all charity advertising, including recruitment, and advertisement preparation costs, and the sale or hire of donated goods. Guidance leaflet is 701/58 (Mar 02)

The Taxation Review (1999) tackled the problem of different rules on “one-off” charity fundraising events for VAT and Income/Corporation tax relief purposes. The exemptions are now extended and aligned, so that any event qualifies for exemption from VAT or income tax provided:
– the public are aware that the purpose of the event is to raise funds for charity, and
– the charity holds no more than four events of a similar type (each of which can last for up to 4 days) in the same location in any year.
A leaflet Exemption for Charities and Other Qualifying Bodies (CWL4) sets out the conditions for direct tax and VAT exemptions that apply to fund-raising events.

Reclaiming VAT on listed places of worship: an interim grant scheme has been introduced which returns in grant aid the difference between 5% and the actual amount spent on VAT on eligible repairs & maintenance to listed places of worship. This is intended to bridge the gap up to an European Union review in 2003 which will consider such a reduced rate of VAT.

Complexity

Registration for VAT can end up creating a lot of extra accounting costs, with little net benefit (if any) in claiming back VAT on expenses. ‘Partial exemption’ is the name of the bureaucratic nightmare that can result – you have to apportion income and/or expenditure between different activities by their VAT status and only claim in the proportions agreed with HMRC. It is not for nothing that auditors’ specialist Charity Units have close links with their VAT experts, but some might cynically suggest that this is only so they can justify their fee, with little benefit for you. A ‘VAT audit’ may be useful, but be clear of what the motivation of those doing it is!

VAT Advice

There is quite a lot of information on VAT registration and collection online at the HM Revenue and Customs site. However the charities section of the newly combined site (spring 05) seems to be lacking specific VAT pages. So check the publications list, although you will probably have to browse through to find all the relevant ones. Most can be downloaded, and then printed off if relevant, which is quicker than ordering via local advice centres. The May 04 update of leaflet 701-1, Charities , is key and much improved.

Charity Finance Group (see Sector support bodies) has VAT advice available via its VAT Club. Also check VAT advice section of Accountancy Services for specialist firms which may have some online resources.