HMRC has published an updated VAT Public Notice 701/41 on sponsorship and donation.
Charities will often receive both sponsorship and donation income at the same time. There is no requirement to account for VAT on the donation, provided that the donation is entirely separate from the sponsorship agreement, or that the sponsorship agreement makes clear which part is payment for services, and which is a donation. However, it must be clear that any benefits the sponsor receives are not conditional on the making of the donation or the gift.
In the second case, the donation will be outside the scope regardless of whether a minimum donation is promised.
A further variant on the ‘charity of the year’ approach is that the business agrees to promote giving by its employees and customers to the charity. In this case, none of the donations by employees of the business and customers will be treated as consideration for a taxable supply.
It would be prudent based on this newly published guidance for charities to check that their commercial agreements clearly distinguish where an amount is received without a supply being made in return.
Please contact Robert Warne if you would like to discuss your position further.