Tax-effective giving and VAT

To be eligible to claim Gift Aid you must be recognised as a charity or CASC for tax purposes.

Payroll giving is a scheme that enables employees to give to a charity straight from their gross salary (before tax is deducted). Any UK, EU, Norwegian or Icelandic charity that is recognised by HMRC for tax purposes can receive gifts this way.

It allows the charity to receive reliable income to enable them to plan for the future and for employers to contribute to sustainable corporate social responsibility initiatives.  It’s also something that charities can do themselves - your fundraising team has the perfect opportunity to practice their approach with other employees before reaching out to new ones.

The individual (who must be on PAYE) decides on the amount and the charity/charities that should receive it, and informs their payroll department. The employer must have set up a relationship with a Payroll Giving Agency (PGA). PGAs are registered charities, regulated by HMRC, who receive the donations and transfer donations from employers to charities. For all information on how the tax relief works and how to set up a scheme go to HMRC.

As well as donating gifts of money, individuals can also help your charity by gifting shares. This can provide you with a significant source of income and can also be very a tax-effective way for the donor to give. Individuals don’t have to pay tax on land, property or shares you donate to charity. This includes selling them for less than their market value. 

It is important to remember that when talking with a potential donor, you must not give financial advice and should encourage the individual to seek any advice they need from a qualified financial advisor.  

Individuals get tax relief on both:

• Income Tax
• Capital Gains Tax

For more information on donations of property, land, or shares go to HMRC

For more information on tax for charities take a look at the ‘Tax Made Simple’ guides from Sayer Vincent

All shares that are transferable can be donated to your charity, but only publicly quoted shares qualify for tax relief for the donor. Publicly quoted shares include shares listed on the London Stock Exchange or Alternative Investment Market shares (AIM). For a full list of qualifying stock exchanges, visit the HMRC website

There are many factors to consider before making your decision. These include:

• Do you have a moral/ethical objection to holding shares from certain companies/industries?
• Do you transfer the shares yourself or get a broker to do it for you?
• What is your investment policy; do you keep the shares or sell them straight on?
• Is it worth your while to transfer the shares? Are there any burdensome restrictions?

We would recommend that your organisation has an agreed ethical policy in place that covers all these issues. If you cannot accept the shares for any of these reasons you may wish to look at the alternative methods to transfer shares listed below. 

To transfer the shares in paper form (certificates), the process is: 

1) Charity/donor obtains a stock transfer form from the Registrar of Shares

2) The form is received and filled out and signed by the transferring party

3) Return the completed form to the Registrar of Shares with original share certificate.

4) The charity will receive a new share certificate in their name.  

Stocks may however be held electronically, in either a corporate nominee account (administered by the registrar) or a stockbrokers nominee account (administered by a stockbroker). In those instances, you will have to contact the nominee in order to check their precise requirements for the transferal of the shares. 

You must advise the donor to keep a dated copy of the transfer form and to establish the value of the shares when they were transferred, so they can claim the tax relief. You can refer them to the relevant HMRC guidance notes for further information about the records they need to keep.

As well as transferring shares as outlined, your charity can also:

• Open a charity account with Charities Aid Foundation – CAF offer services including the donation of shares

• Donate shares to ShareGift – a charity that specialises in accepting small donations of shares which aren’t worth selling on their own

• Donors can sell the shares themselves and then donate the proceeds to charity. There are of course different tax implications should they choose to do this. For more information, see the HMRC website

All companies can get tax relief when they give money to a UK, EU, Norwegian or Icelandic charity that is registered with HMRC but the relief works differently for companies, self-employed people and partnerships. 

When a company makes a donation, it gets tax relief by deducting the amount given from its profits and pays less corporation tax. This is called ‘Corporate Gift Aid’- although unlike Gift Aid given from individuals, charities do not reclaim any tax from HMRC.  

HMRC has further information and guidance on Corporate Gift Aid

Sponsorship is a complex area for tax purposes for both charities and companies. A company can get a tax deduction for payments to sponsor charitable activities if they are also made for the purpose of the company. This might be a payment to get publicity for the company or its products that can be regarded as a reasonable value for the amount paid. The position will depend on the facts in each case.

Companies can claim corporation tax relief for gifts of recognised shares (other than those in their own company), land and property made to your charity. They can also claim relief if the gift is sold to your charity at less than the market value.  

Shares which qualify for relief are the same as those which qualify when they are given by individuals, subject to one exception – a company cannot give its own shares. 

The tax relief works in the same way as for individuals. Companies get the relief in addition to exemption from any capital gains made on gift. Companies should deduct the amount while working out their company profits in the accounting period in which the gift is made.  

When gifts are made by self-employed people or by partners in a partnership, the deduction is calculated in the same way as for individuals. 

Fundraising and charitable activity is, in general, exempt from the payment of VAT.  As a charity you don’t pay VAT when you buy some goods and services.

You must prove to the person who’s selling the goods or services to you that you’re eligible for relief.

You must register for VAT if your charity’s VAT taxable turnover (the total value of everything you sell that isn’t exempt from VAT) is more than £85,000.

You can choose to register if it’s below this, for example if you want to reclaim VAT on your supplies.

For all information on what VAT rates charities pay look at the information on HMRC’s pages

For more information on tax for charities, including VAT, take a look at the ‘Tax Made Simple’ guides from Sayer Vincent.