Can a spring clean save you tax?

As Spring approaches (wishful thinking given it’s only January!) it is usually time to clean out your cupboards and look to freshen up your wardrobe or perhaps like the author, it’s time to “lose” some of his children’s toys!

The question is, can this save you tax? The answer is quite possibly.............

At the moment, if you simply donate your unwanted goods to a charity, the charity sell the goods to the general public and use the funds received towards charitable causes.

However, some charities offer to act as your “agent” and sell the unwanted goods on your behalf in return for your consent to donate the subsequent proceeds to the charity. The charity can then treat the receipt of the monies that the goods were sold for (rather than the actual goods) as a donation under the gift aid scheme (assuming that you also agree to sign the gift aid declaration) and claim some tax relief from HMRC.

For example, for every £100 of monies raised from the goods sold, the charity can claim back £25 from HMRC. So it’s worthwhile for the charity and may also be worthwhile for you, particularly if you are a higher rate (40%) or additional rate (45%) taxpayer. If you are a higher rate taxpayer (earning above £42,465 for 2015/16) then you will be entitled to a similar amount of tax relief i.e. £25 for every £100 raised from the sale of your unwanted goods.

However, there are a few catches to be aware of:
  1. By signing a gift aid declaration you are signing to say that you pay enough tax to meet the tax reclaimed by the charity on the donation. If you don’t pay enough tax then HMRC may seek payment of the tax reclaimed by the charity from you!
  2. In the unlikely event that one of your items is returned to the charity, it may be your responsibility to refund the monies to the unhappy customer rather than the charity’s.
  3. If the asset donated is of a certain value, then you may accidentally end up with a capital gains tax charge!
There are also some other legal and indeed moral implications to consider as the person donating the goods must not be legally obliged to pay the funds generated from the sale of their goods to the charity otherwise neither the charity nor the individual can claim the gift aid tax relief. This of course could lead to the individual deciding to keep the money raised! One would hope morally this would not happen but you never know.

If you wish to speak to a member of our tax team, then for Darlington call Alan Moore or Lee Watson (01325 349700), for Durham call Nicola Bellerby (0191 384 2244) and for York call Alan Moore or Graham Richardson (01904 784400).