How to Claim Tax-relief on Charitable Donations for Individuals and Ltd Companies

In the UK the charitable sector is a significant part of the economy, accounting for 3% of the workforce. And our country regularly reaches the global top-10 most charitable countries list.

A report by Charity Aid Foundation (CAF) found that the UK public gave a total of £11.3 billion to charity in 2020. The average monthly donation being £58. 

27%, which is  more than one quarter of total donors, chose to give to animal-welfare causes in 2020 - proof we really are a nation of animal lovers.

CAF has also found that around 60% of UK citizens give money to charity in any given year. 

Seeing that we are such a nation of givers, and as charity is so important to us, we want to ensure that we are maximising our generosity or claiming our entitlements when it comes to tax and charitable donations.

So in this article we’ll look at the different ways to give and claim tax-relief on donations to charities. 

Employees and Individuals (Give-As-You-Earn vs Gift Aid)

The easiest and simplest way for employees on the PAYE system, which is the majority of people, is to sign-up to Payroll Giving, or Give-As-You-Earn, as it is also called. 

This method works by taking your donation directly from your salary and giving it to your chosen charity before income tax is deducted. Although you still pay National Insurance on your donation.  

Meaning that the tax-relief is automatically and immediately applied at your highest tax rate.

So for example, if you donate £20 per month to a charity, the charity gets £20 but it will only cost you £16. As you receive 20% tax-relief. But as mentioned, you still have to pay NI on the £16.

If you were on a higher tax rate of 40% a £20 monthly donation would only cost you £12, and £11 at 45% tax.

There’s no minimum or maximum to what you can give. And, this is a better system for charities as they can’t claim tax refunds over the basic rate of tax with the alternative method, Gift Aid.

*Self-Assessment

If you are an employee but complete a self-assessment tax return, like some CEOs or Directors, and give donations through Give-As-You-Earn there’s no need to submit all the details of your donations on your SA form. As the relevant tax-relief will have already been applied when the donation was taken.

Gift Aid

The other method of donating to charity and claiming tax-relief is Gift Aid. Under this scheme however, the tax-relief goes to the charity, not to you. Your donation is taken from money you have earned after tax. The charity can then claim back 20% of the amount of the donation from before tax was deducted from HMRC. This gives a little extra to the charity from the government, so if you want to maximise your donations this is the method to use. 

If you’re in a higher tax-band at 40% then you can claim tax back on your donation, as the charity can only claim up to the 20% tax rate. This means that you are entitled to the remaining 20%. 

This tax-relief can be paid back to you via the PAYE system if that is how you receive your wages. Otherwise you need to contact HMRC and ask them to amend your tax code. 

If you file a self-assessment you can do this when you complete your tax return by completing the relevant boxes on the form.

You can donate to a charity with Gift Aid by completing a ‘declaration form’ with a few basic details, which should be available on your chosen charity website or you can ask them for this.

*Making donations via an online payment system, credit or debit card may incur an admin fee. If it does the tax-relief would be applied to the amount prior to the fee being taken.

Which is better?

In comparison the Give As You Earn scheme is generally more convenient for most people. And better for the charity, due the limit on the amount of tax they can claim on donations from higher tax-band donors with Gift Aid.

Ltd Companies

For Limited Companies that want to claim tax relief on charitable donations there are different ways in which they can do this, depending on the nature of the donation.

1. Deducting from profits

To claim tax-relief on donations of money; land; property; shares, fill in the ‘Qualifying Donations’ box with the total value of your donations in the ‘Deductions and Reliefs’ section of your company tax return.

To calculate the value of your donations of land, shares or property see HMRC’s dedicated page.

2. Deducting as a business expense

If you have seconded employees or sponsored a charity then you can deduct this as a business expense in the typical manner in your annual accounts.

3. Claiming as capital allowances

If you have donated equipment to charity you can claim capital allowances on this in your annual accounts.

Important things to note about claiming tax-relief on charitable donations:

Money

In order for a monetary donation to qualify as tax free it must not be one of the following;

A loan you are making to a charity that they will repay

A payment for which the charity will buy property from you in return

A payment of dividends or another form of profit distribution

Anything given to you, your company or anyone connected in return for a donation to a charity is subject to restrictions

There are maximum values for benefits given in return for the donation:

VAT on items

If you’re donating items to a charity then VAT registered business can apply zero VAT to these, if the charity intends to sell, hire or export them. So you can reclaim the VAT on the cost of donated items.

Records

It’s important to keep records and evidence of donations to charity. Any of which must be retained for a minimum of 6 years. These include:

If you are asked to sell a gift on behalf of a charity you must keep records of this, or you may have to pay corporation tax.

Seconding employees

Seconding employees, which means sending them to work for a charity or volunteering your time as an employee, is tax deductible as business expenses. 

Pay the employee (or yourself) their salary as normal via the PAYE system. The costs, that include wages and business expenses, are deducted from your taxable profits. But bear in mind that costs of seconding to CASCs are not claimable.

Simply add the hours worked at the charity to your timesheets and timesheets so you can pay or be paid as per usual.  

Sponsorship

When you sponsor a charity and receive some kind of benefit, like exposure from the display of marketing materials at an event, these kinds of donations, or rather payments, are tax deductible. They qualify as business expenses and can be deducted from your profits before tax.

Giving is Good

Giving to charity is an ethical and philanthropic gesture that can also yield a significant boost for your company's public image, strengthen industry relations or upskill employees over the long-term. However, as with all kinds of expenses, it’s important to remain tax-compliant and reclaim the appropriate reliefs on your donations.