Can a company make business donations to charity and are such donations tax-deductible? If your business can do this, it will be good for the cause that you support and it is also good to help others who are less fortunate.
If you choose to donate to good causes, can you claim for donations to charity as part of your business expenses? Indeed, this is one of those things that you may have thought about before. What is more, if you can claim for these, how do the rules work around limited company charity donations?
Can a company donate to charity?
First of all, when you consider making a donation to charity, you may feel delighted when you can contribute to a good cause. You can donate to your chosen charity or charities that you care about and do a good deed to help those who are in most need.
Small business donations to charity can make a significant change to peoples’ lives who are less blessed than ourselves. The good news is, if you have your own company, you can make limited company charity donations and when you do, the company will receive tax relief
Importantly, there are certain conditions that you will need to meet before you can make a donation through your limited company. Therefore, it will be important that you make sure that you adhere to these.
Business donations to charity -claiming for these
What do we need to consider when we look at can a company donate money to charity? Please note, when your company donates, you will need to retain the documents that support this. The donation also needs be to a UK registered charity. If it is, you can claim this as a business expense in your company’s accounts.
Although you may be able to claim for limited company charity donations the rules around which we explain below, two other expenses that are often missed by contractors are Trivial Benefits and the Annual Event (Christmas Party).
Please also note there are separate rules for business gifts that you should consider, if you are thinking about this.
Methods of donating
Donate on a personal basis
You can donate to a charity on a personal basis and receive tax relief through your personal tax return. The donations should be made under the Gift Aid system so that you can receive tax relief. Please note, any donations that are not via Gift Aid will not receive tax relief. When you use the Gift Aid method to donate, you need to provide a declaration. You can state either in writing or verbally that you are eligible. In the UK, the largest charities will include Gift Aid declarations on their donation forms or websites.
Sadly, due to the way that the UK tax system works, when you claim for tax relief on gifts personally, it will only favour you if you are a higher rate taxpayer. To sum up, you will only actually receive tax relief on a personal basis, if your income is in the higher rates tax band. If you are in the higher rates tax band, your total annual income is above £50,270 in the tax year 2021/22.
Furthermore, if you have not paid any income tax at all and you include the donations on your tax return, you will pay tax on the donations. If you do, the charity can claim the tax back. However, in this scenario, you may choose not to include the donations on your personal tax return and then you will not need to pay the tax on these.
Paying for donations through your company
Please note, when your company donates, as mentioned you will need to retain the documents that support this. What’s more, the donation needs be to a UK registered charity. If it is, you can claim this as a business expense in your company’s accounts.
Therefore, if you donate to a UK registered charity through your business, it will receive tax relief. This is providing that your company makes profits before you pay the donation. In turn, the limited company charity donations are deductible against your taxable profits, and as a result, your business will pay less Corporation Tax.
Furthermore, if you decide to donate your business, there are several ways that you can do this. These include:
- You could choose to donate trading stock items or equipment (items that your company makes or sells).
- Donating certain shares or land/property.
- Make sponsorship payments.
It may be the case that your business may receive some form of benefit, in return for a company donation. An example here might be tickets to a certain event. Therefore, a further condition when you claim for this, is it needs to be lower than a certain amount for it to qualify for tax relief. These amounts are:
|Donation amount ||The maximum value of the benefit |
|Up to £100 ||25% of the donation |
|£101 – £1,000 ||£25 |
|£1,001 and over ||5% of the donation (this is capped at £2,500) |
The above is applicable to the benefits that are receivable by anybody connected to your company. This also includes any close relatives.
The different ways to donate
As a general rule, when you donate money to charity through your company this is tax-deductible. However, there are some exceptions.
First, you are not eligible to claim tax relief on any payments that the charity will pay back to you as a loan. What’s more, you are not entitled to tax relief on donations that you make on the condition that the charity will buy something from your business. Furthermore, your company will not receive any tax relief on any funds that are given to charity as a distribution of company profit (dividend).
Equipment or trading stock
Your company can claim full Capital Allowances (these are tax allowances against company profit) on any equipment that it donates to charity.
Also, any equipment that you donate, must have been used by your business. For example, you may buy a new laptop and donate your old one to a charity for their use.
Other types of equipment that would qualify are vehicles, office furniture, machinery, etc.
Finally, you can give stock items that your business makes or sells to charity.
Certain shares or land/property
This is quite a complex area to explain and it is very rarely used. Please see HMRC’s detailed guidance concerning this.
Can you claim Gift Aid on a company donation
Gift Aid can be claimed on personal donations through your personal tax return. Therefore, this is not applicable if a company makes a donation.
Sponsorship payments are different from charitable donations and this is because your company will receive some form of benefit in return. An example here might be the charity might publicly support or endorse your services or product. What’s more, the charity may show your company’s logo on their branded material and website. It could also have links on their website to yours.
We can treat sponsorship payments through a company as business expenses. In turn, these are tax-deductible.
Please note, if you are making business donations to charity as a sole trader or a partnership there are different rules for you. In this case, you should seek advice from your accountant or HMRC.
Making donations personally
When an individual makes donations to charity, they cannot claim them as an expense in their tax return. The same rule applies to sole traders and partnerships too, whereas companies can claim donations against tax, providing the conditions are met.
Instead, when they donate under Gift Aid to charities and community amateur sports clubs (CASCs), the charity can claim an extra 25p for every £1 that is donated. It will not cost the individual any extra.
As part of the Gift Aid process, the individual will need to make a Gift Aid declaration for the charity to claim the tax. The individual can also include all donations from the last 4 years. They will need to tell the charity about any tax years where they did not pay enough tax. The donations will qualify, providing they are not more than four times what the person has paid in tax in that tax year (6 April to 5 April).
If the person pays tax above the basic tax rate, they can claim the difference between the rate that they pay and the basic rate tax on the donation. It’s the same if they live in Scotland. The claim can be made via their Self Assessment tax return, or by asking HMRC to amend their tax code.
We cover here most of the things that you need to think about when you make a company donation.
As a final note, many contractors and small business owners can make donations through their own company to UK registered charities each year. They may choose a good cause and make donations every month. They may also donate at a time that suits them during the year. In return, they feel content to give support to a good cause and provide some help to where it is most needed.
As part of making business donations through your own company, if you follow the above notes, they are tax-deductible.
Link to Contractor Advice UK group on