CROWD FUNDING

Question

My PC has agreed to fund a project and has set up a fund raising group.   Can the PC set up a crowd funding page in its name or must this be done in the name of an individual who would then donate the proceeds to the PC.

I note that  PCs can set up a public subscription for a specific purpose,. How would this work  ?  For example there is a Community Association charity, could  donations be routed through this and gift aid claimed ?  I have always been somewhat concerned about projects under which VAT is not paid and gift aid claimed

Answer 1

Crowdfunder terms of use state that "We provide a platform for individuals and organisations registered with Crowdfunder.co.uk (“Community Members”) to raise funds for Projects that benefit their community and to contribute to those Projects by funding them or by contributing their time and skills"  So from their perspective the answer is Yes.   Also, a number of PC's appear to have already done this in their name -  see  https://www.crowdfunder.co.uk/bringing-a-library-hub-back-to-the-community

Answer 2

As you say, Parish Councils do have the power to accept donations by public subscription, but you must be clear whose project it is. If it's the PC, then it would normally be possible to reclaim the VAT on the expenditure (20%), but not claim Gift Aid (25%). If it's the Community Association, Gift Aid can be claimed on qualifying donations, but VAT is normally payable on the expenditure. You can't legitimately claim both, as the PC VAT claim is for the council's qualifying expenditure (i.e. not the expenditure of a third party).

Unless you expect to solicit a huge volume of private donations with qualifying Gift Aid declarations, the PC route is the preferred option and always the simplest to administer.

Comments

In this case the PC owns the land on which the project is to be built. The land and the ongoing maintenance falls to the Community Association charity who are leased the land by the PC.  The PC have openly declared it as a PC project . Now the Community Association could legitimately seek restricted  donations as provision of such facilities comes within its objects and could  claim gift aid. The bit I don't get is what is there to stop the Charity contributing to the PC funds,  I suppose one could then argue its not a public subscription but a charity subscription. Would a donation normally be considered as expenditure. It really seems to be a question of what are the checks and balances to be ascertain the source of the money which is VAT reclaimable. Hope I am making sense.

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Let's break this down.

The PC leases the land to the charity. What does the lease say (if anything) about future capital expenditure?

Does the charity's governing document include a power to give funds to the PC? If not, this cannot be assumed, as it is a fundamental principle of charity that income must be devoted to the charity's purposes as outlined in its governing document. Even if the money will ultimately be used to improve the charity's premises, the payment would not be legal unless the governing document expressly permits it. A ruling from the Charity Commission would be required. Think of the wider money laundering implications of charities being allowed to raise funds, claim Gift Aid, then distribute the money to other individuals or organisations.

Gift Aid allows charities to reclaim tax on donations from individuals towards their work. It is highly unlikely that HMRC would permit a Gift Aid scheme to be used as a fundraising vehicle for a third party, particularly a third party that is ineligible to claim Gift Aid in its own right. A ruling from HMRC would be required.

Any charity operating a public appeal is required to notify potential donors of the purpose for which their donation will be used. If the intention is to hand control of the donation to a third party, this fact should be made available to potential donors as part of the appeal literature.

Looking at the VAT scenario, if the charity gives money to the PC to secure improvements to its premises, is it commissioning work via a third party? If so, the PC is acting as agent to the charity for that part of the project, which brings into question the VAT concession that covers only the PC's own expenditure. The fact that the PC also owns the asset makes that an unanswerable question, so a ruling from HMRC would be required.

Clear as mud!

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The objects contain the usual Village Hall expression including "and to provide facilities in the interests of social welfare for recreation and leisure time occupation with the object of improving the conditions of life for the said inhabitants". They have a power which reads raise funds and invite or receive donations and contributions, whether by subscription or otherwise,,,,,,support any charitable trusts, associations or institutions formed for all or any of the objects;. So while it is a PC project being located on Charity managed land I think they could raise funds towards it.   The issue then in my mind is whether as far as the PC is concerned the Charity donation is considered the same as any public subscription as far as it relates to being able to reclaim VAT. As you say very complicated and needs advice

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It is my understanding that the legal interpretation of the above-mentioned phrase is "charitable trusts, charitable associations or charitable institutions..." The alternative interpretation would permit charities to support private members clubs and private businesses, which is not the intention and is contrary to charity law.

The issue relating to VAT is not about the source of the funds, but their application. In general terms, if a PC receives a gift of money, it may spend it and reclaim the VAT thereon. The question remains in your project whether the PC is receiving a gift of money to be spent in any way it chooses, or being commissioned to undertake work for a third party.