Legislation in reference to income tax relief for individuals under the Gift Aid scheme can be found in Part 8 Chapter 2 of ITA 2007. The opening statement at s413 does summarise the relief referred to in the chapter as:
‘Relief for some gifts of money to charities by individuals’
So it seems that your doubt is valid, due to the donation being made is of goods and not money. As such gifts of goods cannot meet the definition for Gift Aid and so income tax relief cannot be given.
However some charities operate a system that allows for income generated from the sale of goods to be considered under the Gift Aid scheme.
To summarise the scheme, the individual allows the charity to act as agent to sell the goods on their behalf. The goods in the shop are still legally the property of the individual, so when the goods are sold the income received, after selling costs, belongs to the individual and not the charity. It is after the sale that the individual can agree to donate all or part of the net cash proceeds to the charity. Thus the donation meets condition A for a qualifying donation as per s416(2) ITA 2007 a ‘gift in the form of a payment of money’. However to get the tax relief the individual must make a valid gift aid declaration to cover the cash donations they wish to make.
As I assume your client is just looking to make a donation to an unconnected charity, I will not continue to discuss the full conditions B – F that also need to be met to ensure the donation is a qualifying one. But these can be found at s416 ITA 2007.
Your client may want to contact charities in the area to see if they operate this scheme. As the items, sales and donations need to be logged, and they will need to confirm they are a UK tax payer, they will no doubt have to fill in some forms when they take their 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 the donation under the gift aid scheme on the relevant tax returns.
It is worth also bearing in mind that as the charity is acting as agent for the individual, if the client already has a sole trade of retailing jumpers and socks or they have a vast quantity of goods for sale, this could amount to trading. Although likely to be rare on this occasion, 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, Charities: detailed guidance notes on how the tax system operates, under chapter 3 Gift Aid section 42. There is also HMRC guidance, mainly aimed at the charities themselves, Gift Aid donation claims for charities and CASCs, under “Selling donated gods on behalf of individuals”.
Please share this article with your clients
Our team of expert consultants have a wealth of experience and can also provide a written consultancy service to support your practice, like having your very own tax and VAT department.
Why not see what My VIP Tax Team can do for your practice, call 0844 892 0251 or email@example.com to find out more.