CTG press release: 29/04/05
VAT Position on Sale of Wristbands
Several members have been in touch with CTRG about the VAT treatment of the sale of wrist bands and we have sought clarification of the position from HM Revenue and Customs [HMRC]. One of the clear benefits of the development of the new Charities Business Stream in the new department is that operational staff covering both direct and indirect tax are fully integrated with the policy team and a more holistic view can be taken of the tax treatment of charities.
Mark Nellthorp, Director of the Charities Business Stream in HMRC, has confirmed the following:
“Further to our discussions regarding the use of wristbands by charities as a means to raise awareness of specific issues and as a method of fundraising I am happy to offer the following clarification of the VAT treatment:
Charitable donations which are freely given and for which nothing is received in return are outside the scope of VAT. Uncertainty may arise where a charity provides an item in response to a donation - this raises the issue of whether there is a supply for VAT purposes.
There are two methods by which a charity will typically make bands available to supporters:
CTRG is aware that that the purchase of such items is an issue for charities and has argued for the extension to wrist bands and similar items of the ESC relating to the operation of the VAT rules with regard to the supply of certain goods used in connection with the collection of monetary donations to wrist bands and similar items.
HMRC has again confirmed that when an item is freely available regardless of the scale of the donation, no VAT is due on the money collected - but as no supply is being made no input tax is recoverable. Those charities selling the item for a fixed price are establishing a taxable supply for VAT purposes with output tax having to be accounted for on the sale price. This arrangement has the benefit that input tax on the purchase of the items by the charity is recoverable.
HMRC has said: “The extra statutory concession relating to the operation of the VAT rules with regard to the supply of certain goods used in connection with collection of monetary donations treats as zero rated certain goods including "lapel stickers or attachments designed to be worn on the lapel, which are of no intrinsic value, low cost to the charity and are given as a token in acknowledgement of a donation". It does not mention wristbands, which I suspect were not a common feature of fundraising at the time the ESC was introduced. I am happy post-election to discuss with ministers whether the wording of this ESC properly reflects the range of modern fundraising activity and whether it might act to discourage innovation in fundraising.”
Although we are keen to see the extension of the ESC, this is a very helpful step forward and demonstrates the progress that we are able to make now that the departments have merged. We believe that it is significant that the wording does not refer to "token" items. This gives charities some flexibility over the value of items given in acknowledgement of a donation, although it will be important that this is not abused if goodwill is to be maintained. Whereas it is clear that gold watches would not be covered, it would appear that the item does not have to be of negligible value.
Please let us know if you have any further questions on this latest clarification. Please pass this information to your colleagues in your fundraising department to help them answer questions.
Mark Nellthorp, Director of the Charities Business Stream in HMRC, has confirmed the following:
“Further to our discussions regarding the use of wristbands by charities as a means to raise awareness of specific issues and as a method of fundraising I am happy to offer the following clarification of the VAT treatment:
Charitable donations which are freely given and for which nothing is received in return are outside the scope of VAT. Uncertainty may arise where a charity provides an item in response to a donation - this raises the issue of whether there is a supply for VAT purposes.
There are two methods by which a charity will typically make bands available to supporters:
- selling them at a fixed (or minimum) price or
- offering them freely in acknowledgement of support (perhaps suggesting but not requiring a particular donation amount) the VAT treatment will be different in each case.
- If an item is freely available, regardless of the scale of a donation, no VAT is due on the money given. This will be true even if a particular level of donation is suggested.
- If an item is sold for a fixed price there is a taxable supply for VAT purposes.
CTRG is aware that that the purchase of such items is an issue for charities and has argued for the extension to wrist bands and similar items of the ESC relating to the operation of the VAT rules with regard to the supply of certain goods used in connection with the collection of monetary donations to wrist bands and similar items.
HMRC has again confirmed that when an item is freely available regardless of the scale of the donation, no VAT is due on the money collected - but as no supply is being made no input tax is recoverable. Those charities selling the item for a fixed price are establishing a taxable supply for VAT purposes with output tax having to be accounted for on the sale price. This arrangement has the benefit that input tax on the purchase of the items by the charity is recoverable.
HMRC has said: “The extra statutory concession relating to the operation of the VAT rules with regard to the supply of certain goods used in connection with collection of monetary donations treats as zero rated certain goods including "lapel stickers or attachments designed to be worn on the lapel, which are of no intrinsic value, low cost to the charity and are given as a token in acknowledgement of a donation". It does not mention wristbands, which I suspect were not a common feature of fundraising at the time the ESC was introduced. I am happy post-election to discuss with ministers whether the wording of this ESC properly reflects the range of modern fundraising activity and whether it might act to discourage innovation in fundraising.”
Although we are keen to see the extension of the ESC, this is a very helpful step forward and demonstrates the progress that we are able to make now that the departments have merged. We believe that it is significant that the wording does not refer to "token" items. This gives charities some flexibility over the value of items given in acknowledgement of a donation, although it will be important that this is not abused if goodwill is to be maintained. Whereas it is clear that gold watches would not be covered, it would appear that the item does not have to be of negligible value.
Please let us know if you have any further questions on this latest clarification. Please pass this information to your colleagues in your fundraising department to help them answer questions.