Supply and consideration ― donations and sponsorship

Produced by Tolley
Supply and consideration ― donations and sponsorship

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Supply and consideration ― donations and sponsorship
  • Is a donation consideration for a supply?
  • Admission for a donation
  • Voluntary subscriptions
  • Gratuities and tips
  • Donations in connection with betting and gaming
  • Project funding
  • Will aid
  • Is sponsorship consideration for a supply?
  • Significant and insignificant benefits of sponsorship
    • More...

This guidance note looks at donations and sponsorship for VAT purposes. In particular, it considers when a payment will be consideration for a supply and therefore potentially within the scope of VAT.

For an overview of supply and consideration generally, see the Supply and consideration ― overview guidance note.

For detailed commentary on the legislation and case law, see De Voil Indirect Tax Service V3.104.

Is a donation consideration for a supply?

If a monetary donation is freely given and the donor does not expect to receive anything in exchange, it will not be viewed as consideration for any supply. The payment is outside the scope of VAT and therefore no VAT needs to be accounted for by the person receiving the donation.

HMRC has suggested the following questions will be relevant when seeking to establish whether a donation is unconditional / freely given:

QuestionSignificance
Does the donor receive anything in return for the payment?If the donor receives something in return this suggests the donation may in fact be consideration for a supply
Are there any conditions attached to the payment that go beyond merely having to mention it in account statements?If there are conditions that go beyond mentioning the donation in the accounts the recipient may be supplying something in return and the donation may be consideration for a supply
What will the payments be used for?The use to which the payments are put may shed light on whether the donation is in fact consideration for a supply
If the donor does not benefit directly, does any third party receive a benefit?If a third party receives a benefit then the donation may still be consideration for a supply (but it may be ‘third party consideration’)
Is there a contract and what are the terms and conditions?It will be important to assess the terms and conditions of any contract which may reveal that the recipient is obliged to do something in return for the ‘donation’

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