Fundraising Company – How to handle and process charity money

Jpeterson85

Hello, we are a limited company which raises money for charity by selling our products with a portion of the sale price going to charity.

We have a contract with different charities which outlines that the money we raise is held in our bank account temporarily and later transferred to them.

We would like to make sure we are managing this as appropriate in our accounts and bookkeeping. This charity money that comes into our accounts should be exempt from VAT.

For example: We sell a product for £500.
£100 goes to charity.
£400 goes to our company.
In our book keeping, this is logged as £400 vatable, £100 vat exempt.

From a legal perspective and for easier management, would it be better to have two separate bank accounts (one for charity money, one for our money)?

I’m not sure whether this just over complicates things unnecessarily because we take payments by card terminal and either way (based on example above) the £500 would be going into our bank account to then be separated later.

It would be great if we can have some professional advice on this and whether this setup would be required or are we just overcomplicating our bookkeeping by splitting the bank accounts and transferring funds across the two bank accounts?

It would also be good to know if there are any other legal requirements for us to be processing charity money in this way.

Jpeterson85

Hello, is anyone able to help with this please?

laddi2010

There are two things to consider

First you have to have HMRC approval to charge sale as VAT exempt for charitable part of sale.

You can still take the payment into your main account linked to credit card or any other business account.
I would suggest you open a separate account and transfer the money end of month or week into that account.
This will ensure you, you have not used the charity money. It will help you in year end accounts preparation

Secondly you probably already doing it, Create an account in your chart of accounts which all the sale of charity part is recorded. Create a department or project as charity name so it will keep record of total sale received for individual charity.

I hope it helps.

S K Punia Accountant

BrNorton007

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SashaL

Original Post: What did you do in this situation, I have exactly the same issue at the moment that I'm trying to understand