How to make your business more charitable

Posted on Sep 18th, 2015 | Tax

Look around you. Is your office space cluttered with extra chairs? Are there budding bakers in your office? Is running half-marathons your CEO’s kinda bag? If so, think about how you can use these elements to donate to a charity and help others.

Giving to charity should be something that every businesses considers doing. Charity donations – financial or otherwise – should always be because you want to help and support others, especially those more disadvantaged than yourself.

Sadly, there are bound to be businesses out there that align themselves with charities for public relations reasons, viewing charitable giving as a gateway to ensuring people’s affections whilst lowering the amount of Corporation Tax they pay. If this is your main reason for donating to the charity of your choice, stop reading now and rethink your reasons why.

Whether you choose to give a financial donation, donate equipment, stock or property, giving to charity is a brilliant thing to do, and far simpler than a lot of people think.

How do I give to charity through my business?

There are different rules depending on whether your business is a limited company or sole trader:

Limited company

If you wish to make a donation to charity via your limited company, you will need to keep the documentation surrounding the donation. Donations are classed as an expense and put through your accounts as Payment of Charitable Donation.

Making charity donations as a limited company lowers the amount of Corporation Tax you pay – see below for how this works.

Sole Trader

If you are 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 “drawings”, or a non-business transaction.

But you may still be able to get tax relief on the donation, so long as you’ve made it under Gift Aid.

When you Gift Aid a donation, the charity can claim some money back from the government. This is the equivalent of basic rate tax on that donation. For example, if you give £10 to a charity under Gift Aid, then the charity will be able to claim an extra £2 back from the government.

If you are a higher-rate taxpayer, then you can claim tax relief on the difference between the basic rate tax relief the charity has already claimed, and the higher rate – so for your 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.

To claim this tax relief, you should record the donations in the main section of your tax return.

What can I give to charity as a business?

Feeling ready to donate to charity? 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 ‘secondment’) and claim this is an 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.

How do I pay less Corporation Tax?

When your limited company donates to charity, your bookkeeper or accountant should deduct the value of your donation/s from your total business profits, before paying any tax.

For example, Gary runs a successful IT company. He decides to donate 2% of his annual profit to charity. Gary’s businesses nets him a cool £100,000 in financial year 2015/16, making his charity donation an even cooler £2,000.

The £2,000 donation will be deducted as an allowable expense from Gary’s original £100,000 profit, making the revised profit £98,000. Gary is taxed Corporation Tax at 20% (£19,600) saving him £400.

You can only donate to charity if your business is making a profit, and donations can not be made to create or make up a business’s loss. A donation can only be used for tax relief up to the limit of the profit.

Need some inspiration?

Many of the big name businesses donate to charity one way or another. Apple and Google both run a gift-matching program meaning that any employee who donates to charity (through a sponsored run or bike-ride for example) will have their contribution matched by the company.

Smaller businesses help out via donating when purchases are made. For example Out Of Print Clothing donate one book to Books for Africa with every purchase made of their product.

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Written by Claire Beveridge

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