Buyers premium explained: should a charity auction charge one?

A buyer’s premium (you will often see it written buyers premium) is a fee added on top of the winning bid, paid by whoever wins the lot. Commercial auction houses rely on it. At a charity auction it is a choice, and usually the wrong one.

I am Kevin Durham, a professional charity auctioneer, and I don’t use a buyer’s premium at the auctions I run. Here is what a premium does to a charity room, and how Gift Aid and VAT treat what your bidders pay.

What is a buyers premium?

A buyers premium is a fee the winning bidder pays on top of the hammer price, usually as a percentage of it. It goes to the auction house, not the seller, and it is separate from the commission the seller pays.

At the top of the market it is steep. Sotheby’s publishes its premium rates by location: in London, 28% of the hammer price up to £1,500,000, then 22% up to £6,000,000, then 15%. A £10,000 hammer price there becomes a £12,800 bill before tax.

The modern premium dates from September 1975, when the big London salerooms introduced it at 10%. In the UK it is a charge for the auctioneer’s service and carries VAT: HMRC’s guidance on the auctioneers’ scheme works through a 15% premium plus VAT.

What is the hammer price?

The hammer price is the winning bid at the moment the hammer comes down. At most charity auctions it is exactly what the winner pays.

I explain how bids build to that moment in how bidding works, and why most donated lots are better without a minimum in my guide to reserve prices.

Should a charity auction charge a buyers premium?

In most cases, no. A charity auction should not charge a buyers premium, because it brakes the bidding at the exact moment you want hands going up, and it muddies the message that the money is going to the cause. Bidding momentum is a skill, not luck, and I don’t want anything working against it.

The case for one is real enough. A premium can cover card fees, platform charges or delivery, so they don’t come out of the hammer price.

From the guest’s side, someone who bids £2,000 on a villa week believes they have given the charity £2,000. With a 20% premium, the invoice says £2,400. Either they knew and quietly bid less, or they didn’t and feel caught out. Neither helps your total.

A better line from the stage: every penny of the hammer price goes to the charity. Only say it if it is true. The fundraising code says fundraising must not mislead donors, and claims about costs need evidence. When it is true, it moves people.

Cheaper ways to cover your costs:

• Build them into the ticket price.
• Ask a sponsor to pick up the card fees, the venue or the auctioneer.
• Source lots in-house, so nothing goes back to a supplier.

Where the money really leaks

The real deductions at a charity auction hide inside the lots. Commission-based suppliers bring consigned items with a reserve and a split, so a bid that sounds like a donation partly goes back to the supplier.

The year before MS UK hired me, an external auction company grossed around £13,000 at their event and the charity saw about £1,300. When I came in, I told the room at the start where every pound was going: which lots gave the charity 100%, and which only paid out above the reserve.

The company grossed around £3,500 that year. The live pledge raised £8,300, all of it to the charity. I didn’t name or shame anyone, and the room did the giving. I just turned the lights on, and the money followed the transparency.

Under the Charity Commission’s trustee guidance, trustees remain accountable for their charity’s fundraising, including the parts someone else runs. I compare fee models in auctioneer commission.

Can you claim Gift Aid on auction items?

Usually not. Section 3.40 of HMRC’s Gift Aid guidance is blunt: a payment for an item at a charity auction is a purchase, not a gift.

There is a narrow exception for bidders who deliberately pay more than an item is worth, but only within the benefit rules. HMRC’s example is a football sold in a shop for £10:

• A £40 bid. The £10 benefit is 25% of the payment, inside the limit, so all £40 qualifies.
• A £30 bid. The benefit is a third, too high. If the charity told bidders at the start that the ball cost £10 locally, the £20 excess qualifies. If nobody said so, none of it does.
• The same ball, signed by the team. It is no longer the shop item, so the whole bid counts as the benefit. Nothing qualifies.

That last case is most of a gala auction. Signed items, experiences and auctions of promises have no shop price, so the whole bid is the benefit. The guidance doesn’t mention a buyer’s premium at all, so take advice before claiming Gift Aid on any part of one.

Where Gift Aid does work is the live pledge. A pledge is a gift of money with nothing given back, so it can qualify when the donor pays UK tax and makes a Gift Aid declaration. The pledge is where the real money lives, which is why I always run one.

How does VAT work on a charity auction?

VAT on charity auction lots mostly depends on whether the lot was donated or bought in. It only matters if your charity is VAT-registered, which turns on its taxable sales passing the threshold in VAT Notice 701/1.

• Donated lots sold by a charity are zero-rated if the sale is open to the public. HMRC’s charities manual applies this to auctions.
• Bought-in lots are normally standard-rated, but exempt when sold at a qualifying fundraising event such as a gala dinner. Conditions apply, including a limit of 15 events of the same kind at one location in a financial year.

None of this guidance covers a premium charged by a charity itself, so ask your accountant first.

What should your charity auction terms and conditions say?

Your charity auction terms and conditions should tell bidders, in plain English, what they will pay and what they will get. Print them in your auction catalogue and on the bid sheets. Cover:

• Whether there is a buyer’s premium. The best version: there isn’t one, the hammer price is the price.
• How and when payment is taken.
• Which lots were donated, which came from a supplier, and what share of each reaches the charity.
• Expiry dates and exclusions on experiences.
• Collection and delivery.
• A line saying auction purchases generally don’t qualify for Gift Aid.
• Who settles a disputed bid on the night.

One legal point: when second-hand goods are sold at a public auction people can attend in person, the buyer is not treated as a consumer under the goods rules of the Consumer Rights Act 2015. Describe every lot accurately anyway. I’m an auctioneer, not a lawyer, so have unusual terms checked.

If you still want a buyers premium

If your committee decides a premium is right, do it in the open:

• Keep it small, and say what it pays for.
• Print it everywhere a price appears.
• Have the auctioneer announce it before the first lot, not after the last. Nobody should meet it for the first time on their invoice.
• Never apply it to the live pledge.
• Agree the Gift Aid and VAT treatment with your accountant before the night.

Getting the money to the cause

The real question is usually how to cover costs without putting off donors. Sponsorship, ticket pricing, lots sourced in-house and a pledge people can Gift Aid all answer it better than a premium.

If you want to talk through how your auction is structured, call me on 07596 851647. I’d rather talk it through than trade emails, and the first fundraising consultation is free.