Knowledge

Donating to charity as an individual, or through your Limited Company?

Posted on Mar 16th, 2018 | Tax

It’s always great to give to charity. The difference a small donation can make to the lives of people in need is profound, and it makes you feel good about yourself, too. If you’re operating a limited company, there are ways you can make your donations go further – both for you and your company.

Donating to charity

No matter who you are or what type of business you run, we’d encourage you to give to charities if you want to! However, in terms of business, there are some extra advantages to giving to charity through your limited company that you’ll miss out on by just donating directly.

When you donate as an individual, a charity receives valuable income to support the people or cause they represent, and you get the warm satisfaction of knowing that you’ve done a good deed. However, when you donate as a limited company, you’re also able to claim tax relief.

Gift Aid

Gift Aid is basically the government making a small contribution to the charity of your choice on top of your personal gift.

If you’re a UK taxpayer, all donations you make to a charity that offers Gift Aid are eligible for the scheme – assuming you pay enough tax (more information on working out your eligibility can be found on HMRC’s website).

For a charity to claim back Gift Aid, you’ll have to provide a declaration, either written or verbally, that you’re eligible. Most large charities include Gift Aid declarations on their donation forms or websites.

Donating through a limited company

If you wish to make a donation to charity through your limited company, you’ll need to keep the documentation supporting the donation. Donations can then be included in your accounts as a business expense.

Donating through your limited company lowers your profits and, therefore, your Corporation Tax (for more information on lowering your Corporation Tax, you can check out our article on the subject). The rules only apply to donations made to national charities, however.

Donating as a sole trader

If you’re a sole trader, or in partnership, then a donation to charity wouldn’t count as a day-to-day running cost of your business. This means that, if you pay the money from your business’s bank account, you would need to record this transaction as personal “drawings”, or a non-business transaction.

If you pay tax above the basic rate, you can claim the difference between the rate you pay and the basic rate on your donation. Do this either:

  • through your Self Assessment tax return
  • by asking HM Revenue and Customs (HMRC) to amend your tax code.

So for a donation of £10, the charity could claim £2, and you would get £2 in tax relief, since the higher rate is 40% and the charity has already claimed 20% of that.

What can I give to charity as a business?

It doesn’t have to be a straightforward financial contribution, you can also support those in need by donating:

  • Equipment – If a business has surplus stock that has been used (e.g. office chairs, computers, printers, tools or vans/cars) these can be donated and capital gains allowance claimed against the equipment. Items that the business makes or sells can also be given to charity
  • Land/property – Got a plot or office space you’re not using? Why not donate it? The market value might be eligible to be deducted from your profits reducing the amount of Corporation Tax you pay
  • Employees – Sounds like a weird one, and it is. However, you can temporarily transfer an employee to work for a charity (known as a ‘secondment’) and claim this as a business expense. If an employee volunteers for a charity in work time, this also can be claimed. Companies must continue to pay employees during this time.

Further reading

If you’re looking for more information on other business expenses besides charitable donations you could claim to reduce your Corporation Tax bill, then you can check out our “What expenses can I claim as a limited company?” article.

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