Meet our Expert
Lizzie joined Farrer & Co as a solicitor in 2007, after training at Baker & McKenzie. Lizzie advises sponsors of new charities, directors, trustees and officers of existing charities and other not-for-profit bodies, as well as individuals and companies wishing to make charitable gifts or do business with charities.
“Our charity has a small gift shop and the profits from each item sold go straight to the charity. Is it possible to claim Gift Aid on these items, as the profit is essentially a donation?”
I am assuming here the gift shop is not selling donated goods (like a high street charity shop) but is selling new items. If this is correct, no gift aid will be available on the price paid by customers for items purchased in the shop irrespective of whether the gift shop is operated by the charity or through a trading subsidiary.
If the charity is running the gift shop directly then gift aid is not available because in return for payment the customer receives the item they have purchased. To claim gift aid a person giving funds to a charity must receive nothing in return or something that is valued at a small fraction of the donation. Where a person buys something in the shop they receive the item purchased in exchange for the price and as a result it is not considered to be a gift on which gift aid can be claimed as the value of the benefit (i.e. the item purchased) will be deemed to be equivalent to the sum paid to the shop.
It is worth noting that selling items in a gift shop may not be considered primary purpose trading that is capable of furthering a charity’s objects (this is likely to depend on whether what is being sold is a way of furthering the charity’s objects or is just a means of raising funds). As a result, this can only be undertaken by a charity directly if the turnover of the gift shop and any other trading activity that is not related to a charity’s purposes falls within the small trading tax exemption (this exemption depends on the charity’s overall turnover but the maximum exemption is £50,000 for charities with turnover of £200,000 and above).
If the gift shop is run through a trading subsidiary then in this case there is no gift of cash to a charity (as not only does the customer receive the benefit of the items bought but in this case the payment is made to the trading subsidiary) and as a result no gift aid is available. For those running charity shops selling donated goods, there is a slightly more complex route through which gift aid may be claimed on the sale of donated goods in some circumstances. This process involves the donor of the goods retaining ownership of the items until after the items are sold in the shop. The charity shop effectively acts as an agent for the donor in selling the goods and it is after the sale of the goods that the individual has the choice of donating the purchase price to the charity or receiving the sale proceeds. Where the individual donates the purchase price gift aid can be claimed assuming a gift aid declaration has been completed. There are some fairly stringent requirements to set up and operate gift aid claims on the sale of donated goods and charities considering this would be advised to consider taking professional advice.
Please note: This advice column is a statement of the general position and should not replace tailored advice.