Charity Shops and Gift Aid

In this month’s blog, Rory McCall gives an overview of the methods charities use to claim gift aid on the proceeds from the sale of donated goods and recent changes HMRC have made to their standard templates:

The basic principle is that the charity (or its trading subsidiary) act as an agent for a private individual, selling goods on their behalf. The charity then asks the owner to donate the sale proceeds to the charity.  If they agree, and all other gift aid conditions are satisfied (please refer to the HMRC guidance for details), the charity can claim gift aid on the net sales proceeds.

There are three ways in which this can be done;

The Standard Method

The charity operates the charity shop directly.  Prior to making a gift aid claim, the charity writes to the individual setting out the total net amount raised from selling their goods and asks them to contact the charity within 21 days if they wish to keep any of the proceeds. After 21 days the charity can treat the proceeds as a donation and claim gift aid.

Method A

The charity operates the charity shop directly and makes it clear to the individual when they bring the goods to the shop that, if the net proceeds are less than £100 in the tax year, then they will not be offered any money back before the charity treats the proceeds as a donation.  If the limit of £100 is exceeded in any tax year then the charity must contact the individual before treating the proceeds as a gift aid donation. This can be done at the end of the tax year.  The charity must write to the individual at the end of the tax year if the proceeds exceed £20 in that tax year or every three years, whichever comes first.

Method B

The charity has a trading subsidiary which runs the charity shop, sells the goods on behalf of the donor and transfers the donated proceeds to the charity. The individual signs an agency agreement with the subsidiary for the sale of the goods and confirms that the proceeds should be automatically gifted to the charity as long as they do not exceed £1,000 in any tax year.  If the £1,000 limit is breached then the individual must be contacted and asked to donate the proceeds to the charity.  As with Method A the charity must write to the individual at the end of the tax year if the proceeds exceed £20 in that tax year or every three years, whichever comes first.

HMRC has published templates containing compulsory text for the letters mentioned in each of the three methods, some of which have recently been updated.  Charities should check that the letters they use are still compliant. The new letters can be found here.

Method A and Method B are known as the simplified methods because they potentially reduce the number of times the donor must be written to.  A charity can move from the standard method to one of the simplified methods at any time.  Guidance on this is also contained at the above link.

This blog is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as a substitute for taking professional advice in any specific situation. Wbg Services LLP (and its subsidiary Wbg (Audit) Limited) will accept no responsibility for any actions taken or not taken on the basis of this blog. If you would like further advice or would like to discuss any of the issues raised in the blog then please get in touch with your regular Wbg contact or use the contact form on our website.

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