Chapter 3.4.5 of HMRC’s Gift Aid guidance states: Payments to a charity in return for services, rights or goods are not gifts to charity and so are not eligible for the Gift Aid Scheme. For example, the following cannot come within the Gift Aid Scheme:

• payment for admission to events (jumble sales, concerts)
• payment for raffle or lottery tickets (including 100 clubs) – the payment to purchase a raffle ticket from a charity is not a gift but a payment for the right to enter the raffle – it does not matter that the chance or expectation of winning a prize is small or that the prize is of little value

HMRC accepts that at a charity auction individuals may be willing to pay substantially more than an item is worth in order to support the charity concerned. The basic requirements of Gift Aid still apply, including the benefit rules.

For items that are freely available and have a retail price, the benefit for Gift Aid purposes is the retail price. If an auction item is not openly available, such as an item owned by a celebrity, its value for Gift Aid purposes is the price paid for it at the auction. The value of services offered which are not usually available to buy, such as babysitting for an evening will also be 100 per cent of the amount given with none of the sum available for Gift Aid.

If the value of the item exceeds the permitted benefit limits for Gift Aid, the donor can treat the auction payment as being payment for the item and any excess can be treated as a donation.

However, the excess payment can only be treated as a donation if the item is capable of being purchased separately and if the donor is aware of the value of the benefit at the time of the auction and is aware, at the time they make a successful bid, that the item could be purchased separately and for what price. HMRC also states that charity and the donor should keep evidence of this arrangement – for example an exchange of letters.

HMRC has published full guidance on charity auctions.