Many businesses want to give something back through charitable donations, but it can be tricky to know the best way to do it. After all, isn’t it just easier to make individual contributions through the Gift Aid scheme and have done with it? Not necessarily. In fact, if you do it in the right way it can actually benefit your business as well.
We take a look some of the ways in which you can make charitable donations to those causes close to your heart.
Use Gift Aid to make personal donations
The Gift Aid Scheme is run by the government and enables charities and community amateur sports clubs (CASC) to claim an extra 25p donation from HMRC for every £1 donated.
If you’re a UK registered taxpayer, all donations you make to charities offering Gift Aid will qualify as long as you have paid enough tax on either your income or on capital gains (the profit on something you’ve sold that’s increased in value). This means the amount of tax you pay is at least equal to the value of Gift Aid claimed by the charity or CASC.
If you’re no longer paying enough tax, then you must tell the charities you support. If you don’t, and they continue to claim Gift Aid, HMRC will ask you to pay back the difference.
Are company donations eligible for Gift Aid?
In a word, no. All donations must be made by an individual for the charity to claim Gift Aid.
So, how can I donate as a limited company?
While donations from a limited company aren’t eligible for Gift Aid that doesn’t stop you from donating. In fact, charitable donations are treated as a tax-deductible expense which will lower your profits and therefore your Corporation Tax bill. Just make sure you keep any documentation supporting your donation, so your accountant knows to include it in your accounts as a business expense.
Also bear in mind any donation must be a genuine donation to qualify for tax relief. So lending money to a charity doesn’t count and neither does giving money on the condition the charity then buys something from your company! And whilst it is acceptable for a charity to give you a gift to say thank you, remember there are limits on what you can accept:
- Donations of up to £100: 25% of the donation
- Donations of over £100: £25
- Donations of £1,001 and over: 5% of the amount (up to a maximum of £2,500)
Can I donate as a sole trader?
You can, but any donation won’t count as a day-to-day running cost. This means you will need to record the transaction either as a non-business transaction or as ‘personal drawings’. As HMRC views this as an individual donation, it will be tax free.
And if you’re a higher rate or additional rate taxpayer, you can reclaim the difference between the basic rate (20%) and higher-rate tax (40% or 50%) on your Gift Aid donation. So, if you donate £100, the charity can claim £25 basic rate Gift Aid and you can also claim £25. This needs to be done either through your Self-Assessment tax return or by asking HMRC to change your tax code.
Do I have to give a financial donation?
Whilst most people associate donations with hard cash, you can also give other things that will benefit your chosen cause. This can include:
- Equipment: you can give items your business makes or sells as well as something your company has used but no longer needs, such as computers, tools, furniture or even company vehicles. You can then claim full capital allowances on these items.
- Land/property: if you have office space you don’t use, then think about donating it. The market value could be eligible to be deducted from your profits which will reduce your Corporation Tax bill.
- Staff time: if you send one of your employees on secondment to work for a charity, then you can claim this as a business expense, whilst still helping out your charity of choice.
- Sponsorship: you can also suggest your company becomes a sponsor of your chosen charity or for a charitable event. If done properly you will still be eligible for a tax deduction while also benefitting from a bit of free publicity.
Hopefully this has given you some idea of the best ways to make charitable donations, whatever your circumstances. If you would like some advice on which option would be most appropriate for your set of circumstances, please get in touch.