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Fundraising for charities

Charities need funds to carry out their activities but care must be taken that the methods used comply with the law and are not inappropriate or likely to cause damage to the charity's reputation. The distinction between fundraising and trading is very important as trading may be outside the powers of the charity and/or incur unwelcome tax liabilities.

Where charities engage professional fundraisers then the law requires certain formalities - in most circumstances a formal agreement will need to be signed with the fundraiser. Other requirements include clearly informing donors of what percentage goes to the charity and to the fund-raiser respectively. Fundraising agreements may also be needed in less obvious situations such as where a charity licenses use of its name to a company in return for a percentage of each product sold.

Street collections, flag days and door-to-door collections, including collecting from pubs and offices etc. may require a licence from the local authority or police. You will also need a licence from your Local Authority if you are planning on selling alcohol at an event.

Corporate sponsorships can be a very lucrative way for a charity to raise funds but the tax consequences for both the charity and business must be considered carefully.

If you are organising a lottery then there are other legal requirements to be met, although "small lotteries" that are held on the day of a fete, for example, may not require registration. Larger lotteries will require a licence from the Gambling Commission [insert link if Jane Lindop can help with these].

Gift Aid increases the value of donations to charities by allowing the charity to reclaim basic rate tax on a gift. If the donor pays higher rate tax they can also claim extra relief on their donations. In order to claim Gift Aid, it is necessary to record the details of the donor and the amount of the donation. The donor must also complete a Gift Aid declaration.

In general, the payment for a lot bought at a charity auction does not qualify as a charitable donation to which Gift Aid can apply. In some circumstances, it may be possible for goods sold at auction to be eligible for Gift Aid. However, this requires prospective bidders to be informed of the commercial value of the item before bidding commences and the item must be commercially available. There are also limits on the value of the item against the price paid.

If you are raising funds for a particular purpose you must use those funds for that purpose alone. For that reason many appeals contain details of how any excess funds will be spent if the initial target is met, otherwise you may find that you have to return the money to the donors or apply for a 'scheme' from the Charity Commission.

Much useful advice is contained on the Charity Commission's website in their brochure CC20 - Charities and Fund-Raising.

Additional information