Did you know that the Government very kindly allows businesses to claim tax relief on donations to charity?
“What?!? There’s a legitimate way HMRC are allowing you to pay less tax?” I hear you shout.
It’s true, your company pays less Corporation Tax when it gives to charity. Better still, there’s a few different ways you can give:
- equipment or stock
- Land, property or shares
- Employees (on secondment)
- Sponsorship payments
What Does It Actually Mean?
This all sounds great, but what does it actually mean for a business?
How Much Does A Donation Save Me?
Well, here’s great news! If you donate £5,000 to charity it only ACTUALLY costs you £4,050. How brilliant is that? Your business saves £950 by helping a charity!
The current rate of corporation tax (2019/20) is 19%, so that means you would have paid Corporation Tax on the full profits of the business, including the £5,000 donation, so basically you only fund 81% of the donation and the 19% comes out of the tax pot.
Your company can pay less Corporation Tax when it gives money to a charity or community amateur sports club (CASC). There are some rules to this, for example you can’t deduct the following:
- Money that is a loan and is to be repaid by the charity
- Donations made on the condition that the charity will buy property from your company or anyone connected with it
- are a distribution of company profits (eg dividends)
Also, just be careful if you receive anything in exchange for the donation. There are rules, gifts/benefits must be below a certain threshold and they are:
|Donation amount||Maximum value of benefit|
|Up to £100||25% of the donation|
|£101 – £1,000||£25|
|£1,001 and over||5% of the donation (up to a maximum of £2,500)|
You can claim full capital allowances on the cost of equipment.
To qualify, the equipment must have been used by your company. This includes things like:
- office furniture
- computers and printers
- vans and cars
- tools and machinery
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.
Donating Land, Property & Shares
Your limited company could pay less Corporation Tax if it gives or sells any of the following to charity:
- land or property
- shares in another company
But, just bear in mind can’t claim for gifts or sales of shares in your own company.
You can donate staff time to charity, and received tax relief on it. You can deduct any costs as normal business expenses if:
- your company temporarily transfers an employee to work for a charity (known as a ‘secondment’)
- an employee volunteers for a charity in work time
Your company must continue to pay the employee and run Pay As You Earn (PAYE) on their salary. You can set the costs (including wages and business expenses) against your taxable profits as if they were still working for you.
Sponsoring 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.
So, what qualifies as sponsorship? 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, please contact use via email@example.com and we’ll be more than happy to advise.
Founder & Head of the Hive
Honey Bee Accountancy