Can I claim for company donations as part of my business expenses? Indeed, this is one of those things that you have thought about before. Indeed if you can claim for these, how do the rules work?
First of all, you may feel delighted when you donate to a good cause. You can choose one that you care about and do a good deed to help those who are in most need. A small donation can make a significant change to peoples’ lives who are less blessed than ourselves. The good news is you can donate through your own company, and when you do, so it receives tax relief. However, there are certain conditions that you need to meet before you can donate. Therefore, please make sure that you adhere to these.
Claiming for donations
Therefore, as a contractor with your own company, you can claim for donations to causes that are personal to you. What’s more, this can be as part of your tax planning strategy.
Although you may be able to claim for donations the rules around which I 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 must give 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, 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.
Donate through your business
Please note, when your company donates, 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. In turn, the donations are deductible against your taxable profits, and as a result, your business will pay less Corporation Tax.
What’s more, if you decide to donate your business, there are several ways that you can do this. These include:
- Equipment or trading stock (items that your company makes or sells)
- Certain shares or land/property
- 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 capped at £2,500)|
The above is appliable to the benefits that are receivable by anybody connected to your company. This also includes any close relatives.
Ways to donate
As a general rule, money that is donated to charity as a company donation by your company 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, for 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.
This is quite a complex area to explain and it is very rarely used. Please see HMRC’s detailed guidance concerning this.
Sponsorship payments are different from charitable donations 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.
One will treat sponsorship payments through a company as business expenses. In turn, these are tax-deductible.
Please note, if you are making donations 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.
Thank you for reading my article, and I hope you enjoyed this. I cover most of the things that you need to think about when you make a company donation.
As a final note, many contractors 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 donations through your own company, if you follow the above notes, they are tax-deductible.
Link to Contractor Advice UK group on LinkedIn https://www.linkedin.com/groups/4660081/