At a recent charity auction I was asked if £60 paid for a cushion qualifies for Gift Aid. My instinctive response was ‘no’ but please read below to find out when it could qualify for Gift Aid.
The purchase of items at an auction is not a donation, but a commercial transaction from which the bidder is, naturally, deriving a benefit. Indeed, HMRC specifically state in their charities guidance that:
‘A payment for an item at a charity auction is not a gift to charity’.
However, when considering charity auctions specifically, the guidance goes on to say that:
‘HMRC recognises that when a person purchases a lot at a charity auction they may intentionally pay more than it is worth in order to support the charity.
So, on that basis, we are prepared to treat a payment for an auction item as a donation to the charity’.
So, in principle, such payments are donations for the purposes of gift aid.
However, in order to obtain relief the benefit received by the donor must not exceed strict prescribed limits when compared with the value of the items auctioned.
Donation Benefit value limit
£0 to 100 25% of the donation
£101 to £1,000 £25
Above £1,000 5% of the donation (up to £2,500)
Please note that the benefit to the purchaser has to be valued. If the item is not commercially available (perhaps a signed team shirt), its value is the auction price paid by the purchaser and therefore there is no ‘gift’ element.
By way of an example, if an auction bid of £100 is made, this is considered, per HMRC guidance (above) to be the amount of a donation.
However, if the normal commercially available price of the auction item is £40, this is the benefit enjoyed by the bidder.
As a result, the donation of £100 will not qualify for gift aid as the benefit to the donor (£40) exceeds 25% of the value of the donation (£100 x 25% = £25).
However, all is not lost, as it could be possible for bidders to ‘buy out’ the benefit received.
In the example above, the treatment would be split such that the winning bidder is paying £40 for something that costs £40, and is then making a separate donation of £60 to the charity.
Although it is possible, its application depends on two criteria being fulfilled:
- that the item is commercially available; and
- that the donor is aware, at the time he/she makes a successful bid that the item could be purchased separately and for what price.