The VAT issue on SMS donations

22 November 2011

Alan Coyne from  www.iDonate.ie -- sponsors of the November edition of the Fundraising Ireland Newsletter -- talks about using SMS for donations and the VAT issue on Premium Rate SMS donations to Irish charities.

Text donations are a great way to give small sums below €10 to charity. Charities are now using text donations to raise additional and significant sums. In a recent UK test of over 100,000 people who were sent an email presenting them with two options: 1.) donate via text, 2.) donate by credit/debit card - twice as many donated by text as clicked a link on the email to fill in a credit or debit card donation form.

With text donations, charities can receive millions of low value donations, which will be reconciled and appear as one sum on their bank account. In terms of offline campaigns, text donation is the most efficient non-cash donation collection system. Charities should also take into account the costs associated with donations by credit cards / debit cards. A debit card donation cost approx 30c per transaction plus approx 2% bank charge.

Response to your campaigns through text can be instantaneous. The proportion of the Irish population with a mobile phone is 90%. Practically everyone can send a text. So your supporters are more likely to be carrying a mobile phone than a credit card.

SMS Donations - How it Works

Premium SMS works through a shortcode number e.g. 57777. The mobile user must first send an SMS as a request to receive the premium message, they then receive the reverse charge message which makes a deduction from their mobile phone credit.

The VAT Problem

Currently, VAT is being paid by the mobile operators to the Revenue on the Full Amount e.g. €2.  VAT should only be paid on the operators fee e.g. €0.05 The issue is detailed on the Revenue.ie website here - http://www.revenue.ie/en/practitioner/ebrief/2011/no-292011.html

So how much are charities losing out ?

A campaign at €2 tariff making €10,000, charities lose approx €1700

 At this point aggregators e.g. Phonovation, Puca, txtnation collect the payouts from each of the operators. Aggregators charge varying fees for their service.

Where to go next – Sign the Petition!

According to the Revenue website – “The charity involved, the mobile operators, and any other party supplying services to support the process, must be in agreement in respect of the transaction set-up. The mobile operators must be able to clearly identity all appropriate transactions in their records so that the VAT status of amounts treated as contributions to charity can be verified.“

www.idonate.ie have setup a petition on their website to highlight the VAT anomaly and ask for your support to have the Revenue guidelines implemented ASAP by the phone operators. Will this have any effect? Who knows, but its a start . Please take 30 seconds to sign the petition. Thank you.