When you’re running your own UK contracting company or have your own business, can a company donate to charity? If it can claim these, are charitable donations tax deductible (UK)? If we consider can my business donate to charity as a limited company contractor, when are donations allowable for Corporation Tax? If your business can donate money to charity via limited company charity donations, it’ll be good for the cause that you support. What’s more, it’s also be good to help others who are less fortunate. Therefore, in this guide covering business charity donations, we’ll consider when are charitable donations tax-deductible for UK companies? What’s more, we’ll also consider how to make small business donations to charity as a limited company contractor. We’ll also research what this involves and what to think about in respect of a company donation to charity.
If you choose to donate to a good cause, can you claim business charity donations (limited company) as part of your business expenses? In fact, you may have thought about can a business donate to charity before. In business, there’s many companies willing to donate to charity (UK). Indeed, many companies donate to charity in the UK. Out of those, many contractor companies also make small business charitable donations. Therefore, for those companies that donate to charity, they can support good causes and many choose to do this.
Therefore, let’s research are charitable donations tax-deductible for limited companies? What’s more, if UK contractors and small business owners can claim a business donation to charity, how do the tax rules work around charity donations from business? In this guide, we’ll look at the tax benefits of business donating to charity, the rules around company donations and when such donations for business reduce your Corporation Tax.
Initial thoughts on business donations to charity
Can a company donate to charity and are charity donations tax-deductible?
When you consider donating to charity from limited company, what should we think about? In terms of when are your company donations tax-deductible what factors do we need to take into account? As a business, when you make company donations to charity, you may feel delighted as you can contribute to a good cause. You can proceed with donating to charity as a business and your contractor donation can be to your chosen charity or charities. When you make a charity donation from limited company you will do a good deed to help those in most need. Indeed, small business charity donations (limited company) can significantly change people’s lives who are less blessed than us.
Let’s 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, besides considering when are business donations to charity tax-deductible, are there any other limited companies’ 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. Therefore, if you make a business donation to charity and we consider when are business donations tax-deductible, the company will receive tax relief, however certain conditions apply. Basically, you will need to satisfy and adhere to these conditions before you can make ltd company charity donations.
There are many common questions from contractors and business owners alike, with regard to UK companies donating to charity. These will also include when are corporate donations tax-deductible and they include:
- Can I donate to charity from my business?
- Can I make charitable donations through my business?
- Are charitable donations a business expense?
- Are donations allowable for Corporation Tax?
- Can you claim charitable donations as a business expense?
- How much can a business donate to charity?
- Is donating to charity tax-deductible?
- Are donations tax-deductible for companies?
- Are business charitable donations tax-deductible?
- How much should a business donate to charity?
- Can a charity claim gift aid from a limited company?
- What is a qualifying charitable donation for Corporation Tax?
In this guide, we’ll research all the above. We’ll also consider how to donate money to charity as a UK business owner. Further, we’ll investigate when are charitable donations tax-deductible for companies in the UK.
How can you claim for small business donations to charity?
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 we consider are charitable donations tax-deductible for UK companies, and you plan on being a small business donating to charity, it is important to note that limited company charity donations should be to a UK-registered charities. If it is, you can claim any business donations to charity as a business expense. In turn, this will help reduce your Corporation Tax 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 for your UK contractor company donation as already mentioned.
Now, although you may be able to claim company charitable donations under the rules we explain below, limited company contractors often miss two other expenses:
It is key to note that besides business charity donations (limited company), there are separate rules for business gifts that you should consider if you are thinking about this.
Methods of donating
Donate to charity on a personal basis
You can donate to a charity on a personal basis and receive basic rate 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 aren’t made via Gift Aid won’t receive tax relief. Basically, when you use the Gift Aid method to donate, you need to provide a declaration. Indeed, you can state either in writing or verbally that you’re 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’ll only favour you if you’re a higher-rate taxpayer. To sum up, you’ll only receive tax relief on a personal basis if your income is in the higher rates tax band. If you’re in the higher rates tax band, your total annual income is above £50,270 in the tax years 2022/23 and 2023/24. Therefore, if your income is in the basic rate band (income under £50,270) there is no additional relief due on your gifts.
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 business donations to charity through your company
What to consider first
When you make a business donation to charity, you must retain the documents which support this. In addition, the corporate charity donations need to be to a UK-registered charity to receive charity tax relief. If they are, you can claim the limited company charity donations as a business expense in your company’s accounts. As a result, they will be qualifying charitable donations for UK Corporation Tax. Therefore, your company will save Corporation Tax against its annual tax bill. However, if you make a company donation to a non-registered charity, the business will not receive UK Corporation Tax relief.
Therefore, if you make company donations to a UK-registered charity, it will receive tax relief. This is providing that your company makes profits before you go ahead and make your contractor’s donations. In turn, the ltd company charity donations are deductible against your taxable profits, and as a result, your business will pay less Corporation Tax.
The different ways to make business donations to charity
If you decide to make corporate donations to charity through your business, there are several ways to do this for businesses donating to charity. Therefore, donations by companies can include:
- Donating money to charity. Indeed, when a company donates to charity, this is the most common method of corporate charitable donations.
- The donation of goods to charity. Basically, you could donate trading stock items or equipment (products or services that your company supplies).
- As a company giving to charity, you could donate certain shares or land/property.
- Make sponsorship payments.
Many businesses will decide to donate money to charity as this is the most common form of donations. If the charity(s) are UK registered, the business will receive tax relief on the donations.
Donation amounts and the benefits in return
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:
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
HMRC explain the rules on tax when your limited company gives to charity. We’ll now take into these areas in more detail.
As a general rule, when you give money to charity through your company, this is tax-deductible. However, there’s some exceptions to this for companies giving to charity. First, you cannot claim tax relief on any payments the charity will pay back to you as a loan. What’s more, you aren’t entitled to tax relief on a business donation to charity where there’s a condition the charity will buy something from your business. Furthermore, your company won’t 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
The donation of land, property or shares is Capital Gains Tax free (unlike when you sell such assets). However, overall, this is quite a complex area to explain and is very rarely used. Please see HMRC’s detailed guidance concerning this.
Sponsorship tax rules
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.
Regarding the sponsorship tax rules, the sponsoring needs to be `wholly and exclusively’ incurred for the purpose of business trading. Indeed, this rule applies to all business expenses for a UK company. Therefore, if it can be demonstrated that the sponsorship isn’t related to the business itself, it’ll not be tax-deductible. For example, the sporting club that the company sponsors take part in activities that the directors are personally interested in themselves. In this case, HMRC will regard it as a personal hobby and disregard the expense.
Therefore, if you meet the `wholly and exclusively’ test, we can treat sponsorship payments through a company as business expenses. In turn, these are costs are tax-deductible for your company.
If you are making small business donations to charity as a sole trader or a partnership, there are different rules for you. Therefore, in the case of partnership or self-employed charity donations/sole trader donations to charity, you should seek advice from your accountant or HMRC.
Can you claim Gift Aid on business donations to charity?
Gift Aid can be claimed on personal donations through your personal tax return. However, this is not applicable on business charity donations (limited company).
Donate money personally to a charity
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. On the other hand, 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.
We cover most of the things you need to consider regarding are charitable donations tax-deductible for limited companies, to receive Corporation Tax relief. Besides covering when are donations from a business tax-deductible, we also show what to consider for those companies who donate to charity. What’s more, we set out in the above the tax benefits of charitable donations for business.
Many owners of their own UK contractor limited company and other small business owners make business donations to charity. Basically, they will make one-off donations or make these throughout the course of the year through their company. They can choose a good cause and make limited company charity donations every month or once per annum. As a company donating to charity, you may also donate money to charity at a time during the year that suits you. In return, you will feel content to give your support to a good cause and provide some help where it is most needed.
Finally, as part of making a business donation to charity through your own company, if you follow the above notes, it’ll be tax-deductible. There are many more great guides on this website which explain UK tax rules and conditions for certain expenses. One that is worth a read to gain more insights on saving tax is our guide on tax tips for contractors.
Link to Contractor Advice UK group on