Sounds like the intro to a bad joke, but this a gentle reminder of the VAT and tax implications of charity fundraising events.
In the wake of the current economic situation in the UK, charities are likely to feel the squeeze more than ever as household budgets become severely impacted by the cost of living crisis and the impending recession.
Charities may evolve to use increasingly innovative ways to receive donations and more creative fundraising events to encourage charitable giving.
What to look out for from a VAT and tax perspective for fundraising events
In one of few examples of harmonisation between VAT and direct tax rules, the basic premise is that fundraising events are exempt from tax and VAT providing the following conditions are all met:
- No more than 15 events of any one kind, in any one location per financial year are held
- The event is clearly for the purpose of raising funds for the benefit of the charity
- There is a reasonable expectation of the event creating a profit, even if it makes a loss
- The event must be advertised as a fundraiser on the promotional material used
The exemption will cover all income generated, including admission fees, the sale of commemorative items and food.
A wholly-owned subsidiary who runs an event can also benefit, providing the proceeds are paid to the parent charity. The gift aid scheme may be available to minimise any tax exposure in the subsidiary.
Careful planning is required because if you have 16 identical events at the same location, all 16 events will become taxable and subject to VAT.
By implementing a system to monitor the frequency and location of fundraising events, it should be possible to easily manage the risk of losing these valuable exemptions.
Please do not hesitate to contact the expert Charity tax team at Dafferns if you have any queries regarding fundraising events or charitable group structures.