Charities, donors, grants, tax?
Discussion
Not sure if this is the best place, but lots of clever people here…
If a donor gives to a charity they can reclaim tax (gift aid at the charity and if a higher tax payer, a refund from HMRC on their self assessment form)…
If that donor then applies to the same charity for a grant, (e.g for education / research / etc)…
what is the tax situation?
can they / the charity just keep the tax rebates, or is there any issue?
e.g. a donor believes in what a charity is doing so donates £800 - the charity reclaims through gift aid the base rate of tax, assumes 20% tax payer so reclaims £200, donor is a higher tax payer so reclaims the rest… then the donor applies to the charity for a grant to support them studying in the field… and the charity gives them e.g. £800
it has been cost neutral to the donor but they have gained back tax as has the charity…
can charities give grants to those who donate to them?
can they reclaim tax?
what if the donation and grant are in different tax years?
is there an expected gap between donations and grants?
what if donations come out of a donor’s monthly charitable giving, but they get a one off grant during a period when they are donating?
there appears to be very little I can find on this online, but it is an issue I am looking at with a charity where I have some involvement - won’t give precise details as don’t want to put those details online, but it is potentially likely to happen at some point quite innocently and I am uncertain what the charity should be doing…
the general assumption seems to be that there is no overlap between those who give to charity and those who receive from charity, but there can be and not all charities give services some give cash, so it could be as simplistic as my example above
interested to see what thoughts people might have…
If a donor gives to a charity they can reclaim tax (gift aid at the charity and if a higher tax payer, a refund from HMRC on their self assessment form)…
If that donor then applies to the same charity for a grant, (e.g for education / research / etc)…
what is the tax situation?
can they / the charity just keep the tax rebates, or is there any issue?
e.g. a donor believes in what a charity is doing so donates £800 - the charity reclaims through gift aid the base rate of tax, assumes 20% tax payer so reclaims £200, donor is a higher tax payer so reclaims the rest… then the donor applies to the charity for a grant to support them studying in the field… and the charity gives them e.g. £800
it has been cost neutral to the donor but they have gained back tax as has the charity…
can charities give grants to those who donate to them?
can they reclaim tax?
what if the donation and grant are in different tax years?
is there an expected gap between donations and grants?
what if donations come out of a donor’s monthly charitable giving, but they get a one off grant during a period when they are donating?
there appears to be very little I can find on this online, but it is an issue I am looking at with a charity where I have some involvement - won’t give precise details as don’t want to put those details online, but it is potentially likely to happen at some point quite innocently and I am uncertain what the charity should be doing…
the general assumption seems to be that there is no overlap between those who give to charity and those who receive from charity, but there can be and not all charities give services some give cash, so it could be as simplistic as my example above
interested to see what thoughts people might have…
BoRED S2upid said:
Is the grant likely to be the same as that donated as in your example? That looks dodgy and like it’s being done deliberately to avoid tax.
no, simplified example - unlikely to be identical amounts….but a donor could eg give £100 p/m
and might ad-hoc request payment for a course which might be eg £500 or £1,000
so totally innocent and non-matching amounts, but presumably has the same effect…
StevieBee said:
The first question that springs to mind is why would a charity provide a grant to a higher level tax payer?
education is a simple examplee.g a donor might also be a volunteer for the charity
the charity might fund them to go on a course - could pay the course provider, or give a grant to the volunteer / donor, arguably the course could be solely of benefit to the charity, but might in some cases be argued to be of advantage to the donor…
Surely if the organisation isn't paying the training provider directly then they are simply reimbursing your expenses (you having previously paid the training provider).
The net result is that you have not gained at all, and the charity has effectively paid for the training (albeit indirectly). There is no impact on your donations/tax relief.
The net result is that you have not gained at all, and the charity has effectively paid for the training (albeit indirectly). There is no impact on your donations/tax relief.
jeremyc said:
Surely if the organisation isn't paying the training provider directly then they are simply reimbursing your expenses (you having previously paid the training provider).
The net result is that you have not gained at all, and the charity has effectively paid for the training (albeit indirectly). There is no impact on your donations/tax relief.
true, but as per my example, if I want to do the training it will cost me £800, so I could pay directly, but if instead I get a grant from a charity to whom I donate, I still pay that £800 for the course effectively via the charity but now the gov. gives back £££ in tax rebates…The net result is that you have not gained at all, and the charity has effectively paid for the training (albeit indirectly). There is no impact on your donations/tax relief.
not sure that seems right…
does it not basically come down to a question of whether you can benefit financially from a charity to whom you donate?
akirk said:
jeremyc said:
Surely if the organisation isn't paying the training provider directly then they are simply reimbursing your expenses (you having previously paid the training provider).
The net result is that you have not gained at all, and the charity has effectively paid for the training (albeit indirectly). There is no impact on your donations/tax relief.
true, but as per my example, if I want to do the training it will cost me £800, so I could pay directly, but if instead I get a grant from a charity to whom I donate, I still pay that £800 for the course effectively via the charity but now the gov. gives back £££ in tax rebates…The net result is that you have not gained at all, and the charity has effectively paid for the training (albeit indirectly). There is no impact on your donations/tax relief.
not sure that seems right…
does it not basically come down to a question of whether you can benefit financially from a charity to whom you donate?
If you're a volunteer and also a donor, then the Charity are perfectly within their rights to send you on a course to help improve your skills which they benefit from via your service to them. If your new skills benefit you beyond the charity work, that's OK. Your donations and the cost of the course are irrelevant to one another. Providing they pay the course provider directly, this is perfectly acceptable. If you have claimed back additional tax on your donations, that's fine too.
Where it gets murky is where the charity pays you the money that you then pay the course provider yourself. This is where transparency changes to opaque because all they can show is that they paid you - a donor - for the course. Did you do a deal with the course provider and only paid them £500 but pocketed the rest? Do you actually attend the course? All these things can be established but the point is that it doesn't 'look right' - optics - which can lead to suspicion and scrutiny.
There's no law that prevents a charity donor also being a recipient of the services provided by that charity (unless there is deliberate fraud in play). And the law permits a donor to reclaim tax. So the issue is governed only by the need for transparency on the part of the charity and the morals of all concerned.
Why should a donor wish to use the services of a charity they are donating to. The ultimate test of a charitable donation is that the donation is altruistic i.e. the donation is for the benefit of others.
If HMRC sees that donations are being used to benefit the donor, they will not be amused.
If HMRC sees that donations are being used to benefit the donor, they will not be amused.
akirk said:
BoRED S2upid said:
Is the grant likely to be the same as that donated as in your example? That looks dodgy and like it’s being done deliberately to avoid tax.
no, simplified example - unlikely to be identical amounts….but a donor could eg give £100 p/m
and might ad-hoc request payment for a course which might be eg £500 or £1,000
so totally innocent and non-matching amounts, but presumably has the same effect…
As a trustee of a charity it would be good for transparency if those awarding the grants didn’t know who the donors were which I’m sure they don’t therefore no favourable donations because donor.
Eric Mc said:
Why should a donor wish to use the services of a charity they are donating to. The ultimate test of a charitable donation is that the donation is altruistic i.e. the donation is for the benefit of others.
If HMRC sees that donations are being used to benefit the donor, they will not be amused.
This was my thinking initially but on reflection, I can see where valid situations may arise. If you make regular donations to, say Macmillan, and then in later life have need for the services they provide, those donations would and should not exclude you from receiving those services.If HMRC sees that donations are being used to benefit the donor, they will not be amused.
What the OP is describing appears to be a deliberate attempt to capitalise upon the benefits afforded by HMRC to both donor and charity. The transactions that are taking place are all between the charity and an individual. You’ll know better than me (and many) whether HMRC would take action on this but beyond that is what it looks like regardless of any law that may or may not exist.
It's certainly not something I’d do either as a Charity boss or donor.
jeremyc said:
You can improve the optics by paying for any training yourself before seeking reimbursement from the charity (on presentation of a paid invoice/receipt from the training provider together with proof of attendance).
Almost all credible grant givers and funders will not fund something retrospectively. There are exceptions but you generally need to apply before you buy.Thank you for the continued thoughts / comments...
I don't want to give away too much detail about the charity - the situations which might arise which gave me initial concern are genuine - they are definitely not anyone trying to gain from HMRC or do a tax fiddle - but I do think that being squeaky clean is an important part of running a charity or any type, so want to avoid situations which might be seen differently...
There are genuine reasons why the charity might be supporting the donor financially and genuine reasons why simultaneously the donor is donating to the charity - the 'tax benefit' is something that hasn't been considered and I don't want others to think that it was done for that reason - my instinct is that ethically the charity should effectively tell the donor to reduce their donations by the amount they would give as a grant - even though that has a greater cost in reduced tax rebates... it seems a cleaner approach...
It is interesting that no one is saying - can't do that it is illegal, I have tried to find relevant legislation and failed, but will keep looking - I do think that there is an optics issue as others have mentioned, and I suspect the way forward is to prefer an approach where donors reduce their donations as the first step... but it is something I hadn't considered before, so am keen to find out what the actual position is if there is one!
I don't want to give away too much detail about the charity - the situations which might arise which gave me initial concern are genuine - they are definitely not anyone trying to gain from HMRC or do a tax fiddle - but I do think that being squeaky clean is an important part of running a charity or any type, so want to avoid situations which might be seen differently...
There are genuine reasons why the charity might be supporting the donor financially and genuine reasons why simultaneously the donor is donating to the charity - the 'tax benefit' is something that hasn't been considered and I don't want others to think that it was done for that reason - my instinct is that ethically the charity should effectively tell the donor to reduce their donations by the amount they would give as a grant - even though that has a greater cost in reduced tax rebates... it seems a cleaner approach...
StevieBee said:
This was my thinking initially but on reflection, I can see where valid situations may arise. If you make regular donations to, say Macmillan, and then in later life have need for the services they provide, those donations would and should not exclude you from receiving those services.
I think that this is slightly different in that Macmillan are providing support services and in many cases those services are not available on the market as a commercial transaction anyway, so there isn't money going both ways as cash...StevieBee said:
Almost all credible grant givers and funders will not fund something retrospectively. There are exceptions but you generally need to apply before you buy.
In the scenario I have it would be agreed ahead of the expense, but in fact the donor might well pay for it and then reclaim - much like an employee reclaiming on expenses, so there would be an appropriate paper trail...It is interesting that no one is saying - can't do that it is illegal, I have tried to find relevant legislation and failed, but will keep looking - I do think that there is an optics issue as others have mentioned, and I suspect the way forward is to prefer an approach where donors reduce their donations as the first step... but it is something I hadn't considered before, so am keen to find out what the actual position is if there is one!
StevieBee said:
Eric Mc said:
Why should a donor wish to use the services of a charity they are donating to. The ultimate test of a charitable donation is that the donation is altruistic i.e. the donation is for the benefit of others.
If HMRC sees that donations are being used to benefit the donor, they will not be amused.
This was my thinking initially but on reflection, I can see where valid situations may arise. If you make regular donations to, say Macmillan, and then in later life have need for the services they provide, those donations would and should not exclude you from receiving those services.If HMRC sees that donations are being used to benefit the donor, they will not be amused.
Eric Mc said:
StevieBee said:
Eric Mc said:
Why should a donor wish to use the services of a charity they are donating to. The ultimate test of a charitable donation is that the donation is altruistic i.e. the donation is for the benefit of others.
If HMRC sees that donations are being used to benefit the donor, they will not be amused.
This was my thinking initially but on reflection, I can see where valid situations may arise. If you make regular donations to, say Macmillan, and then in later life have need for the services they provide, those donations would and should not exclude you from receiving those services.If HMRC sees that donations are being used to benefit the donor, they will not be amused.
That makes me a bit happier - however I guess I am increasingly aware that HMRC will interpret rules to suit them and their main goal is to maximise tax / minimise rebates, so any excuse they might have could be deployed!
Gassing Station | Business | Top of Page | What's New | My Stuff