ON FUNDRAISED INCOME
VAT PART TWO: DONATIONS
Should academies be paying VAT on money, goods or services received in the form of
donations? Tax expert Rupert Moyle explains… W
hen raising money, academies need to consider whether the income they receive
is outside the scope of VAT – because the money raised is freely given without anything expected in return – or if the income is in respect of a business activity. If it is the latter then academies needs to understand the VAT treatment and the potential impact this has on their VAT registration and recovery position. In considering what constitues
‘business’, you must ascertain whether a donor receives a benefit of substance. The donor might receive a simple acknowledgement of their gift, such as being named in a list of
52 SUMMER 2018 FundEd
supporters, perhaps in a newsletter. But this would not, in HMRC’s view, be sufficient to constitute a benefit of significance and a reciprocal business arrangement. For example, if a parent pledged
£50 against a school’s crowdfunding campaign, and then received a thank you acknowledgement on the school’s website there would be no VAT implications. However, if the school was offering a free ticket to the quiz night in return for the pledge, this could be constituted as ‘business’, although it would depend on the individual circumstances. In cases where a donor (or a
sponsor) receives more than a mere acknowledgement – having their
company logo displayed on a plaque; receiving some form of promotion; gaining access to performances; being offered use of facilities, for example – in return for its ‘donation’, this would constitute a business relationship and the supply by the academy would potentially be subject to VAT.
Donations of gifts or services In addition to money gifted, goods or services might be donated in return for a benefit offered by the academy. With a reciprocal ‘business’ relationship, the treatment of supplies to and from the donor needs to be recognised, and the correct VAT treatment applied. This will inform the academy if the VAT registration threshold (£85,000 from 1 April 2018) has been breached, if VAT is chargeable to the donor/ sponsor and if an amount of VAT on expenditure must be restricted as a result of business income. Let’s use the example of a local
restaurant inviting a group of students to tour its kitchens, where no money changes hands, but the school promotes the activity to parents before and after the event, and secures press coverage. If the local restaurant does not expect any publicity and the school is simply telling the parents about this student activity then there would not be a reciprocal arrangement between the school and the business. Even if the restaurant were to be identified in the press coverage, this would be seen as a consequence of the school wishing to publicise the event rather than the restaurant, and therefore one could argue that any publicity
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