Fundraising Events: VAT Relief

The exemption from VAT in respect of income generated by charities and not for profit organisations in relation to one-off fundraising events is one of the most valuable, if not the most widely used VAT relief within the sector.  Although widely used, there has always been some doubt over certain aspects of this relief, and in this blog, we are seeking to assist fundraisers to unravel those complexities by outlining key elements of the relief to make it easier to appreciate its value.

What is a fundraising event?

For the purposes of the VAT relief, a one-off fundraising event is an event which is organised and promoted primarily to raise money for charity.

It is therefore, key that the people attending, or participating in the event are aware it is a fundraising event. That being the case, tickets, leaflets, posters, and other promotional material must make it clear that the event is being staged to raise funds for charity.

Social events which have clearly not been advertised as fundraising events, will not qualify for the relief, regardless of whether they may or may not make a profit. However, an event which clearly has the hallmarks of a fundraising event but makes a loss merely through lack of success should still qualify.

The relief is intended solely to cover specific fundraising events, so activities which are regular or continuous, such as the running of a charity shop or a social enterprise, will not qualify.

An event which is repeated on successive days, such as a pop concert, is seen as one event each day (see below for maximum number of events permitted). A single event which takes place for more than one day, such as a show, or golf tournament, is seen as one event.

HMRC also accept that an event can be held over the internet.

Limit on number of ‘local’ events

The relief is restricted to 15 events of the same kind at any one location per financial year. If more than these are held, none of the events qualify for the VAT exemption.

For this purpose, location means held in the same place. Similar events held in different locations still qualify. For example, 30 sponsored walks held in different locations around the country would all qualify for the VAT exemption.

The 15 events limit on local events does not apply where the gross weekly takings are no more than £1,000. If this limit is breached, then all the events in that week will not qualify. Below are examples of a list of events which HMRC agree would qualify for the relief.

Examples of events which HMRC agree would qualify for the relief:

• A ball, dinner dance, disco or barn dance
• Performances e.g. concert, stage production, film and any other event which has a paying audience
• Fete, fairs or festivals
• Horticultural shows
• Exhibitions – such as art, history or science
• Bazaars, jumble or car boot sales
• Sporting participation e.g. sponsored walk or participation in an endurance event
• A contest or quiz
• Fireworks displays
• Dinner, lunch, or barbecue
• Auction of bought in goods

How does the VAT relief work?

The relief enables all income generated from the supply of goods or services, at or in connection with a fundraising event, to be exempt from VAT.

This will include ticket sales, admission charges, advertising space in programs/ brochures, merchandise, auctioned goods (but not if they have been donated), auctioned services, bar and catering supplies and sponsorship. Where donations are received at a fundraising event, this will be outside the scope of VAT altogether.

Supplies which, under normal circumstances, would be treated as zero-rated if purchased away from an event, would equally benefit from the zero-rate treatment, despite being supplied at a fundraising event. This will include sales of programs/ brochures, the sale of donated goods whether auctioned or not, the sale of children’s clothing, as well as advertising services supplied to other charities.

It is important to note that the application of the VAT exemption is not optional. If an event qualifies for the relief, then the exemption is applied mandatorily.

Who can benefit from this VAT relief?

The one-off fundraising event VAT exemption is unusual in that it is one of the few VAT reliefs that is not restricted to the charity itself. For instance, a charity’s subsidiary trading company can also benefit from the relief, where it stages the fundraising event on behalf of the charity, provided it:

• is a wholly owned subsidiary of a charity; and

• passes all profits made, from whatever source to a charity.

Additionally, other organisations such as other not-for-profit organisations, voluntary organisations, Trades Union bodies, professional bodies, learned societies, as well as organisations providing facilities for playing sport and physical education, will be able to qualify for the relief. Below are examples of the types of organisations which are entitled to benefit from the fundraising exemption:

• An organisation whose purposes are exclusively charitable
• A wholly owned subsidiary of a charity
• A formally appointed agent of a charity
• A non-profit making body mentioned in item 1 of Group 9 of the Value Added Tax 1994:
  • a trade union (or other staff association) a professional association, an association for the advancement of knowledge etc
  • a body which has objects which are in the public domain and are of a political, religious, patriotic, philosophical, philanthropic or civil nature
• A non-profit making body mentioned in Group 10 of Schedule 9 of the Value Added Tax 1994 established for the principal purpose of providing facilities for participating in sport or physical education or
• A non-profit making cultural body mentioned in item 2 of Group 13 of Schedule 9 of the Value Added Tax Act 1994 which managed and administered on a voluntary basis by persons who have no financial interest in its activities

Agents/joints events

Where fund raising events are organised by two, or more charities, or other qualifying bodies, can benefit from the relief.

However, it must be noted that, although an event may be organised for the benefit of a charity, or charities, it will not qualify for the exemption unless it is organised by a charity or other qualifying body.

For instance, where an individual, or independent group independent of a charity, holds a fundraising event, the VAT exemption would not apply. Where however, a charity appoints an agent or promoter, to organise the fundraising event on its behalf, the exemption would still apply. In this case, it is possible that HMRC might wish to review the agency agreement. If the agent changes, or it retains any element of the event’s gross receipts, this should be treated as an agency fee, which would be subject to VAT at the standard-rate.

VAT recovery on related costs

The VAT exemption relief only applies to income generated by the fundraising event. It does not apply to the goods or services purchased in relation to the event.

That being the case, the entitlement to reclaim the VAT incurred on event related expenditure costs will depend on the nature of the income generated by the event. For instance, if the event only generated exempt income (e.g. ticket sales /admissions) then the VAT incurred is either wholly recoverable or irrecoverable depending upon whether the entity staging the event has managed to stay below the partial exemption de-minimis limits.

If however, the event generates both exempt income and zero-rate income, say from the sale of an event brochure, or sale of donated goods via an auction; certain amounts of VAT incurred can be

partially recovered under the charity’s partial recovery agreement with HMRC (effectively as a general overhead). In such circumstances, HMRC accepts that VAT incurred on venue/marquee hire can be partially recovered, but any cost relating to admission, catering or entertainment remains wholly attributable to the exempt event.

Examples of zero-rated fundraising income types:

• the sale of donated goods by a charity
• the supply of eligible food
• the supply of eligible printed matter (e.g. brochure)
• the supply of young children’s clothing
• the supply of advertising time or space to a charity

Accordingly, it can be extremely advantageous to ensure an event produces zero-rate income to enable a partial recovery of VAT on certain costs.

The following issues will require particular attention:

Sponsorship

Corporate sponsorship of an event, (where the sponsor receives advertising/exposure in return for his payment), is covered by the exemption. This is only the case however, where the sponsorship payment relates solely to a fundraising event. In all other circumstances, the sponsorship payment is liable to VAT at the standard- rate in the normal way.

Unsold merchandise

Event specific merchandise and commemorative items such as adult T-shirts, mugs, posters, etc. which are sold after the day of the event will be liable to VAT at the standard-rate. The sale of video and/or audio recordings of the fundraising event would be standard rated, if supplied post-fundraising event.

Summary

The VAT exemption for one-off fundraising events is an extremely valuable VAT relief for the sector.

Where VAT recovery is anticipated to be restricted, the use of zero-rate income to enable a partial VAT recovery is very straightforward, yet very effective. Similarly, if it is considered that it would be more beneficial to charge VAT on tickets/admissions to enable a full VAT recovery on event costs, the use of a subsidiary which, either is not wholly owned or does not pass all of its profits to the charity, can prevent the need to apply the exemption when desired.

Finally, where supplies of zero-rate items at events has not previously been identified, it may be beneficial to consider the retrospective opportunities for claiming additional VAT recovery.

If you have questions about the exemption from VAT in respect of income generated by charities and not for profit organisations, please get in touch with our tax team at 01903 234094.