As with any fundraising activity, you should consider and cost the potential benefits and returns. How much do you think you can raise? What are the likely returns and impact on staffing? Challenge events can be very labour-intensive and costly, particularly if last-minute changes have to be made, plus there are likely to be significant costs for running the event especially for foreign travel and expenses. Will this event make the best use of your available resources? Are you clear what your objectives are? For example, relationships with new donors, publicity, fundraising, PR about overseas projects.
You’ll also need to think about insurance and ensure that there is adequate cover arranged, as well as any liabilities between your charity and a tour operator – what will happen if a tour is cancelled or there’s an accident? It’s important for individual participants to be aware of any risks they take on and whether they need to take out personal insurance – whether that’s from the tour operator or another provider so there’s adequate cover for those taking part.
It’s highly advisable for you to carry out a risk management assessment so you can be aware of and put in place any contingency plans you need. This will of course be dependent on the type of event and where it’s taking place, but the kind of risks to think about include the weather and natural phenomena such as threats of volcanic eruption, tropical storms or earthquakes as well as the political situation of the country. The safety of participants is crucial – you should check the most up-to-date advice from the Foreign and Commonwealth Office.
You should also think about whether any of your charity’s staff or volunteers will be attending/taking part in the event. If so, then it’s a good idea to clearly define their role and ensure their welfare – are they attending as part of their job, or as a participant and fundraiser? Check your employee liabilities and come to an agreement with the staff regarding their job description, hours of work etc.
In many cases, the tour operator you contract with will sub-contract much of the travel arrangements to local companies and third parties in the country where the event is taking place. It’s worth taking due diligence and understanding the relationship between the tour operator and any sub-contractor, considering the safety record of the companies and checking references. You should also reviewing whether they are members of industry bodies and have an ATOL licence where appropriate. You might want to ask for references or speak to other charities that have used their services too.
Review the contract with the tour operator and all the terms and conditions. It should cover the quality of equipment to be used and the qualifications of the instructors/guides who will be on the tour, as well as your ability to cancel or postpone the event and any refund/cancellation charges. Also think about who is the most appropriate person to sign the contract from your charity and ensure that any financial commitment is agreed.
Ensure all promotional literature presents a fair assessment of the tour, what participants will do, and the level of fitness required. Many charities try to ensure that potential participants have a relevant level of fitness by organising pre-tour sessions or giving out training guidelines. It is recommended that all promotional materials supplied to potential participants and, particularly, material sent to them as part of fundraising packs must spell out clearly if any part of the funds raised by the participant in the name of the charity are to be used towards the tour costs.This gives any potential donors and sponsors a clear idea of where their money is going. Participants must be clear as to the amounts they need to raise to participate in the event (whether that’s met through their personal contribution or from sponsorship) and all agreements entered into must be clear and transparent.
Are the participants professional fundraisers?
Where there is a clear benefit to the participants which is, or might be, considered to be more than £1,000, it is important that they are treated as professional fundraisers. This means they need to sign written agreements containing all the necessary terms and need to be given appropriate solicitation statements to use when raising money. This will most often apply where the participant doesn’t personally pay the whole cost of the trip but uses some of the sponsorship money to pay the costs (with any money raised over this amount going to the charity).
For more information on professional fundraisers take a look at the relevant section in the Code of Fundraising Practice.
There are special legal requirements for overseas travel events - e.g. the Package Travel, Package Holidays and Package Tours Regulations 1992 (the Package Travel Regulations) and The Civil Aviation Air Travel Organisers’ Licensing Regulations 1995 (the ATOL Regulations). The Civil Aviation Authority (CAA) has issued guidance for charities organising challenge events involving flights. The legal issues surrounding these events can be complicated and it is critical that you understand them fully and/or get appropriate specialist legal advice.
It is good practice for the contract with anyone promoting the event to make very clear the allocation of specific responsibilities and risk. The charity is likely to own the copyright on all materials produced for the event and should approve all promotional material and advertisements in advance.
The tax issues surrounding these events can be complex and it is important that you understand them fully and/or get appropriate specialist tax advice. Sometimes the event will be run through a trading subsidiary and therefore the income. The following are the most likely scenarios:
1. Participants pay for the travel costs and commit to raising a certain amount of sponsorship.
Where the participants pay the charity for their own travel expenses, there may be a package holiday supplied to the participant. Charities could find themselves trading in package holidays if they collect the funds in from participants for travel costs, insurance, etc. This can be avoided by having participants deal directly with the travel operator. The sponsorship raised by individuals will be donations collected by the individual and passed on to the charity. These donations should then be outside the scope of VAT as it will not be trading income.
2. Participants raise a minimum amount of sponsorship to be eligible to participate, but travel costs can be paid from sponsorship raised.
A ‘minimum amount of sponsorship’ is effectively the same as specifying an entry fee. If participants are only allowed on the trip if they pay this amount, then this is an entry fee and the charity is providing a service in return. This is trading for tax purposes and it is a business activity for VAT purposes. So the minimum amount of sponsorship is subject to VAT (if the charity is registered or now exceeds the threshold). It is also best practice to consider whether this activity should be channelled through a trading subsidiary if it is to be regular trading activity.
It may be possible to keep it within the charity if the event qualifies as small-scale and is not regular. A further question arises in respect of the VAT treatment of this type of activity. As stated above, this would be within the scope of VAT (whether in the charity or a trading subsidiary). You also need to consider whether the Tour Operator’s Margin Scheme (TOMS) rules apply. These apply to any organisation selling-on package tours. A charity collecting in sponsorship from participants and then using those funds to pay for travel and accommodation has effectively sold a tour to a participant. Under TOMS, the sale price of the tour (presumably the minimum sponsorship and any other charges, such as registration fees) is matched against the cost of the tour. The ‘margin’ or gross profit is the basis for calculating the amount of VAT due to HM Revenue and Customs. No VAT can be recovered on invoices for the cost of the tour. No VAT invoice should be issued to participants.
If the event is taking place outside the EU then no VAT has to be charged but this does have an effect on the overall VAT position of the charity. Sponsorship raised by participants that is in excess of the minimum sponsorship is a pure donation. These amounts can be paid to the charity, or they can be paid into the trading subsidiary initially, and then transferred to the charity promptly.
3. Participants pay for the event up front and, in some cases, if they raise a minimum amount of sponsorship, the participant receives all or part of the event costs back from the charity.
The treatment will be similar to either point one or point two above. It ends up being one or the other arrangement, depending on whether they raise enough funds. This option is more difficult to administer, however, as it will not be known what the tax and VAT treatment ought to be until after the event.
4. The travel company organises the event and makes a donation to a named charity for every place booked.
In this scenario, the charity is only receiving a donation and so this is outside the scope of VAT and not trading. However, arrangements allowing the travel company to use the charity’s logo or mailing list need to be on a proper footing. The charity ought to issue a licence for the use of the logo and mailing list and charge a fee (subject to VAT if it is registered).
5. Charity advertises for participants, using their name and logo, but a travel company handles all travel arrangements. Participants have to book with the travel company and have a separate agreement with the charity to raise a certain amount of sponsorship.
The charity may be acting as an agent for the travel company and so care should be taken that respective roles and responsibilities are entirely clear. If the travel company is benefiting from promotion of its name and business, then you should consider whether the charity needs to charge a fee for this. If the arrangements make it clear that the charity is not the tour operator, then this should ensure the charity is not undertaking this particular business activity. However, care is still needed in regard to the sponsorship agreement. If the charity stipulates that a minimum sponsorship has to be raised, then this is the same as an entry fee. It is then within the scope of VAT and possible trading if undertaken on a regular basis.
These are often charged in addition to the requirement to raise sponsorship. These are within the scope of VAT.
The costs of advertising in newspapers etc. may well fall within the special relief for charities and therefore be at zero-rate. Note that the advertisement has to be placed by a charity and should be to raise funds. The relief does not apply to the travel company advertising for participants.
Gift Aid, CAF vouchers and other tax effective giving
Note that only the donation element of income from these events can be paid through Gift Aid, covenant or CAF voucher. Participants must not use tax effective means of paying their minimum sponsorship, registration fees or other fees that are a purchase of a service.
Clearance in advance
It is wise to obtain clearance for your event from Customs and Excise in advance. You will need to plan ahead to allow sufficient time for this and it is preferable if clearance is obtained before publicity material has been printed, so that you can change it if necessary. There are many variations and this guidance only sketches a few of the common ways in which charities organise these events. You may well find, therefore, that you get a different ruling for your event to the ruling colleagues get in another charity. Small differences in the way an event is organised may change the ruling. You should also consider obtaining clearance for relief from VAT on your advertisements. To be safe, all challenge events can be channelled through the trading subsidiary and then there will be no problems over direct taxation. All the funds can be transferred back to the charity.
Impact on overall VAT and tax position of charity
It is best not to consider these events in isolation. You ought to plan and discuss the impact on the rest of the charity with your finance section. VAT and tax have to be considered in the context of the charity’s entire activities. A particular VAT treatment for these events could have a significant financial impact on the overall position of the charity.