Introduction -business donations to charity
When you are UK contracting or have your own business, can a company donate to charity, and if it can, are charitable donations tax deductible (UK)? If your business can donate money to charity via limited company charity donations, it will be good for the cause that you support, and it is also good to help others who are less fortunate. We will consider in this article business donations to charity as a limited company contractor, what this involves and what to think about when you do this.
If you choose to donate to a good cause, can you claim business charity donations as part of your business expenses? Indeed, you may have thought about can a business donate to charity before. Companies that donate to charity can support good causes and many will choose to do this.
Therefore, are charitable donations tax-deductible for limited companies? What is more, if UK contractors and small business owners can claim these, how do the rules work around limited company charity donations?
Initial thoughts
Can a company donate to charity and are charity donations tax-deductible?
First, when you consider company donations to charity, you may feel delighted when you can contribute to a good cause. You can proceed with donating to charity as a business and the donation can be to your chosen charity or charities. When your business donates you will do a good deed to help those in most need. Small business charity donations can significantly change people’s lives who are less blessed than us.
Let us now look at business charitable donations while you are contracting. If a business makes these, when are charitable donations tax-deductible for UK companies? In addition, are there any other charity donations tax implications to be aware of?
The good news is that if you have your own company, you can make limited company charity donations. When you do, the company will receive tax relief, however certain conditions apply. Notably, you will need to satisfy and adhere to these conditions before you can make ltd company charity donations.
Business donations to charity -claiming for these
What do we need to consider when we look at can a company donate money to charity? Certainly, any charity donations from companies, the company owner should retain the documents supporting these. When you are donating to charity the donation should be to a UK-registered charity. If it is, you can claim this as a business expense in your company’s accounts.
How much can a limited company donate to charity? There is no limit as such for limited company charitable donations however you do need to retain the paperwork as already mentioned.
Although you may be able to claim limited company charity donations under the rules we explain below, limited company contractors often miss two other expenses:
- Annual Event(Christmas Party).
It is key to note that besides business charity donations, there are separate rules for business gifts that you should consider if you are thinking about this.
Methods of donating
Donate money to charity 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. Basically, any donations that are not made 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 the UK tax system works, when you claim tax relief on gifts personally, it will only favour you if you are a higher-rate taxpayer. To sum up, you will only 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 years 2022/23 and 2023/24.
Furthermore, if you have not paid any income tax and 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 you will not need to pay the tax on these.
Business giving to charity -pay for donations through your company
When you make ltd company charity donations, you must retain the documents which support this. What is more, the corporate charity donations need to 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 make business charity donations to a UK-registered charity, 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 make corporate donations to charity through your business, there are several ways that you can do this. Therefore, donations by companies can include:
- Donating money.
- You could donate trading stock items or equipment (products or services that your company supplies).
- Donating certain shares or land/property.
- Make sponsorship payments.
It may be the case that you may receive some form of benefit when donating to charity as a business. An example here might be tickets to a particular event. Therefore, a further condition when you donate money to charity and claim this, is it needs to be lower than a certain amount 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 applies to the benefits receivable by anybody connected to your company. This also includes any close relatives.
The different ways to donate business donations to charity
Monetary donations
As a general rule, when you give money to charity through your company, this is tax-deductible. However, there are some exceptions.
First, you cannot claim tax relief on any payments the charity will pay back to you as a loan. What’s more, you are not entitled to tax relief on donations you make where there is a condition the charity will buy something from your business. Furthermore, your company will not receive any tax relief on any funds given to charity as a distribution of company profit (dividend).
Equipment or trading stock
Your company can claim full Capital Allowances (tax allowances against company profit) on any equipment it donates to charity.
Also, any donated equipment 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 qualify are vehicles, office furniture, machinery, etc.
Finally, you can give stock items your business makes or sells to charity.
Certain shares or land/property
This is quite a complex area to explain and is very rarely used. Please see HMRC’s detailed guidance concerning this.
Sponsorship payments
Sponsorship payments differ from charitable donations because your company will receive some 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.
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.
Other considerations
Can you claim Gift Aid on a company donation?
Gift Aid can be claimed on personal donations through your personal tax return. However, this is not applicable on business charity donations.
Donate money to charity 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 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 four 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 they pay and the basic 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.
Final thoughts
We cover most of the things you need to consider regarding companies who donate to charity.
Finally, many owners of their own UK contractor limited company, as well as other small business owners make business donations to charity each year through their company. They may choose a good cause and make limited company charity donations every month. They may also donate money to charity 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 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