Sale of Donated Goods

The sale of donated goods to raise funds is an important source of income for many charities and in this blog by Head of Charities, Jenny Simpson, we’ll examine some of the ways to maximise the income it provides.

The sale of donated goods does not qualify as a ‘trade’ for tax purposes, so the income earned is exempt from tax.  It qualifies as zero rated for VAT in certain circumstances;

  • The good are offered to the general public; and
  • There were no ‘preceding arrangements’ concerning the sale / purchase; and
  • No adaptation / change is made to the good prior to sale (minor repairs are OK); and
  • The goods are a genuine donation with no reciprocal arrangements; and
  • The donor intended the goods to be sold, not to be used by the charity.

This zero-rating can be useful as it allows the charity to reclaim some of the input VAT incurred in making the sales, a potentially valuable cost saving.

The Retail Gift Aid Scheme allows charities to boost the proceeds by claiming gift aid thereon.  Under the scheme the charity (or its wholly owned subsidiary) sells the donor’s goods as agent and the donor then donates the proceeds (net of any commission charged) to the charity under the gift aid scheme.  The charity can then claim gift aid on the net proceeds.  There are detailed rules for the operation of the Retail Gift Aid Scheme but there are also software solutions to help charities comply.

Finally, it may be possible to treat the auction of donated goods (but not services) as zero rated for VAT depending on the circumstances of the auction.  This again gives the potential for reclaim of part of the input VAT incurred on the costs of the auction.

This blog is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as a substitute for taking professional advice in any specific situation. Wylie & Bisset LLP (and its subsidiary Wylie & Bisset (Audit) Limited) will accept no responsibility for any actions taken or not taken on the basis of this blog. If you would like further advice or would like to discuss any of the issues raised in the blog then please get in touch with your regular Wylie & Bisset contact or use the contact form on our website.