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