07 June 2011
Charities, The Law And Unintended Consequences
As some of you know, we have been looking as a socially committed but small business to give support to a charity, either Practical Action or Water Aid, and link that back to sales via the web site as a sensible way to work out the donation and also to give our customers a sense of buy-in back to this. However, as often comes about, the law is not that simple.
Firstly, by mentioning a charity in our order acknowledgements and on our website, this link is viewed as payment for the promotional use of a charity's brand in generating sales, rather than a gift or extra cost as we had thought about it. Therefore, we would need to enter into a corporate-charity partnership via a Commercial Participators' Agreement with a minimum financial commitment of £10,000. It would be nice if our sales were that high, i.e. well over £1 million, but they are not. So that is a non-starter. Water Aid's FAQs explain this well.
Secondly, VAT would be charged on the payment as it becomes a promotional service, i.e. HMRC can get their mitts onto it, but Steenbergs could not reclaim the VAT through our business as it is outside of our scope of activity and is not for business purposes, so we would get an extra 20% charged on us for HMRC's charitable benefit. That is another disincentive from wanting to do the right thing.
So we can donate the money to charity but we will not be able to tell you about it in a way promotionally linked to any charity. Overall, I am pretty grumpy about the way obstacles are put in the way to prevent small businesses trying to be good. Is charity such a bad thing? Why are all laws and regulations created for the benefit of big business to the detriment of smaller enterprises? Oh and by the way, yes I really am that naive and stupid.
Can come anyone come up with a solution as we still intend to do something like this as it is the right thing to be doing and is all part of who we are and want to be? My thought is that we state that we will make donations every year at the rate of 20p per order from our website sales, then give a retrospective donation to an "unnamed" charity determined after the accounting year end by our customers. In this case, we commit to giving the value, but because we do not gain any benefit direct from any link to a specific charity, this cannot be viewed as receiving anything in return by HMRC, i.e. it is not deemed to be a sale.
Alternatively, we could go for a more woolly "Steenbergs is delighted to be supporting WaterAid in 2011. To find out more about what WaterAid does, visit www.wateraid.org/uk" rather than linking in to sales.
The upshot is, however, that under UK law it looks as if Steenbergs might not be able simply to have a "named" charity linked to our web sales for the year, nor perhaps could we distribute leaflets to our customers about the charities for their benefit etc etc. How dumb is that!
Neither Sophie nor I will be backing down on our commitment. We just need to work out how to do this. All help gratefully received.