With the festive season rapidly approaching, many charities will be planning Christmas fayres, yuletide concerts and other similar fundraising events. So it is a good time to be reminded of the rules about how the income from such events is taxed – whether that is VAT or other taxes such as corporation tax.
Confusion can arise because certain events organised by charities or voluntary organisations – even when they are for the purpose of raising funds – can fall into the category of ‘trade’, with profits taxed accordingly.
The good news is that in the majority of cases these events are exempt from tax, as long as they meet two key tests:
The event is of a kind which falls within the exemption from VAT under the VAT Act 1994
The profits from the event are transferred to a charity or charities, or otherwise applied for charitable purposes
As ever when dealing with tax law, evidence is needed to show that such an event satisfies both of these criteria, and it is useful to clarify exactly what is meant by each one.
For tax purposes, an event must be clearly organised with its primary purpose being to raise money for the benefit of the charity, and that excludes events which make a profit incidentally. Also, an event is defined as an ‘incident with an outcome or result’, so not, for example the frequent operation of a shop or bar.
Such eligible events are restricted to 15 events of the same kind in a financial year at any one location by a charity. Importantly, if you exceed this number, none of the events will be exempt. You can hold more than 15 events at different locations, provided they are genuinely distinct (eg not two car boots held in adjacent fields on the same farm). This limit does not apply to small-scale events, where the gross takings (not the profit) are no more than £1,000 a week.
If an event is jointly organised by two or more charities, it will only be exempt if all the organisations involved are within this 15 event limit.
One final point: the law says that not only must the event be for the purpose of fundraising, but it must also be promoted as such, in a way which makes it clear to those attending that it is a fundraising event. Publicity material, tickets and other promotional items should clearly refer to fundraising, and charities should keep examples of these to support evidence of exemption.
HM Revenue & Customs has produced a comprehensive guide to help charities determine whether their events qualify for the exemption, and this can be downloaded here.