Personal Tax

TAX RELIEF ON CHARITABLE DONATIONS

QUESTION:

After Christmas I often end up with a pile of unwanted items such as jumpers, scarves and CDs. As a higher rate tax payer can I get tax relief for donating these items to a charity? ANSWER:

Maybe. It depends whether the charity you donate the items to operates the relevant scheme and actually sells the items you donate.

Legislation summarises tax relief on charitable donations as: ‘Relief for some gifts of money to charities by individuals’. Since your unwanted jumpers etc are not money they would generally not qualify for tax relief.

However, some charities operate a system that allows for any income generated from the sale of goods to be considered under the Gift Aid scheme.

To summarise the scheme, you would allow the charity to act as agent to sell the goods on your behalf. The goods in the shop are still legally your property, so when the goods are sold, the income received after selling costs, belongs to you and not the charity. It is after the sale that you can agree to donate all or part of the net cash proceeds to the charity. This would meet the first condition for gift aid, that the donation is ‘a gift in the form of a payment of money’. However, to receive the tax relief you must make a valid gift aid declaration to cover the cash donations you wish to make.

There are also further conditions to satisfy for people who are “connected” with the charity. I assume this doesn’t apply to you but those conditions can be found by searching the internet for “conditions B - E section 416 Income Tax Act 2007”.

You may wish to contact charities in your area to see if they operate this scheme. The items, sales and donations will need to be logged and you will need to confirm you are a UK tax payer. So there should be some paperwork to complete when you take unwanted items to the shop. Charities usually provide annual or quarterly statements showing dates of goods sold, amount of cash donated and the tax claimed. You will need these statements to claim tax relief on the donation on your tax return.

It is worth also bearing in mind that as the charity is acting as agent, if you already have a business of retailing jumpers, scarves etc or you have a vast quantity of goods for sale, this could be viewed as trading by HMRC. Although likely to be rare, if frequent or connected to a trade, the income generated could be liable to income tax even if all proceeds are donated to the charity.

Full details of how these systems operate can be found in HMRC’s guidance. Search the internet for “charities: detailed guidance notes on how the tax system operates” and see chapter 3 Gift Aid, subsection 3.42

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