Updated: Nov 30, 2020
In December, we often get a number of queries about charitable giving and whether businesses can support charities and despite how 2020 has been such a difficult year for most, people and businesses are still wanting to help out. Most people know about giving support personally and gift aid but did you know you can also give to charity via your limited company.
Should you be looking to make a donation to a charity before Christmas, please read through the below pointers to bear in mind so you can give the most to charity and benefiting your business too.
Can I give to charity?
Yes, you can! Your limited company pays less Corporation Tax when it gives the following to a registered charity:
equipment or trading stock (items it makes or sells)
land, property or shares in another company (shares in your own company don’t qualify)
employees (on secondment)
You can claim tax relief by deducting the value of your donations from your total business profits before you pay tax just as long as you have made a profit in your business during this tax year.
If you donate more than your profit
The most you can deduct is the amount that reduces your company’s profits to zero.
If you donate more than your total profits you cannot:
declare trading losses on your tax return
carry over any remaining amount to your next tax return
Can my business donate money?
Your limited company can pay less Corporation Tax when it gives money to a charity or community amateur sports club (CASC) you can do this by deducting the value of the donations from your total business profits before you pay tax.
We would always recommend having a separate item in your ledger for charitable donations. However, you cannot deduct payments that:
are loans that will be repaid by the charity
are made on the condition that the charity will buy property from your company or anyone connected with it
are a distribution of company profits (e.g. dividends)
What about if I am given something in return?
Any benefits you’re given in return for your donation (e.g. tickets to an event) must be below a certain value.
This applies to benefits given to any person or company connected with your company, including close relatives. A charity may give you something as a thank you for your donation, tickets to an event or fundraiser for example. However there are limits imposed on the value of such rewards:
Up to £100 - maximum benefit 25% of the donation
£101 – £1000 - maximum benefit is £25
£1001 +5% - maximum benefit of the donation (capped at £2,500)
Can I give a charity equipment or trading stock?
Your limited company pays less Corporation Tax if it gives equipment or items it makes or sells (‘trading stock’) to a charity or community amateur sports club (CASC).
Giving equipment You can claim full capital allowances on the cost of equipment but to qualify, the equipment must have been used by your company.
This includes things like:
computers and printers
vans and cars
tools and machinery
Giving trading stock If your company donates its trading stock to a charity or CASC, you don’t have to include anything in your sales income for the value of the gift. This means you get tax relief on the cost of the stock you’ve given away.
What about VAT and charity?
If your company is VAT-registered, you’ll need to account for VAT on the items you give away. However, you can apply zero VAT to the items - even if you normally charge the standard or reduced rate - if your company makes the donation specifically so that the charity can:
sell the items
hire out the items
export the items
This means you can reclaim the VAT on the cost of the trading stock you donate. If you can’t zero rate the items, use the VAT rate you normally apply to them.
Can I sponsor a charity?
Charity sponsorship payments are different from donations because your company gets something related to the business in return. You can deduct sponsorship payments from your business profits before you pay tax by treating them as business expenses. Payments qualify as business expenses if the charity:
publicly supports your products or services
allows you to use their logo in your own printed material
allows you to sell your goods or services at their event or premises
links from their website to yours
If you’re unsure whether a charity payment qualifies as a sponsorship payment or a donation, contact the charities helpline.
Deduct as business expenses
Deduct costs as normal business expenses in your company’s annual accounts if you have:
sponsored a charity
Not running a limited company?
There are different rules for charitable donations if you are operating as a sole trader or partnership. For details, or if you have any questions about giving to charity through your business, you should seek advice from your accountant or HMRC.
If you would like to know more about charitable donations, send us an email at email@example.com for more information.