Charity Tax Relief: Donating Through a Limited Company

by | Jan 28, 2020

Charity Tax Relief: Donating Through a Limited Company

​Did you know that you can pay less corporation tax when you donate money to charity from your limited company? Yes, you can claim relief for the money you give to charity. There are many ways your business can benefit from donating to charity. Here is everything you need to know about charity tax relief: 

Why give to charity? 

There are many good reasons to donate to charity. What you give will have a big impact on the cause you are supporting. 

Donating to charity can boost your mood and strengthen your personal values. Plus it reinforces lessons of generosity and helping others. It feels good to give back and support a cause you and your team are super passionate about. Make sure to get your team involved in your charity events to get the team together and boost employee morale.

If you own a limited company you can take advantage of the charity tax relief. This means you can pay less corporation tax whilst helping out a cause you love.

What can you give? 

The value of your donation should be deducted from the total business profit before you pay tax. The following are donations you can give and claim tax relief through your limited company and pay less corporation tax: 

Money donation

donation through limited company

A monetary donation is the most common way to support the cause of your chosen charity and can be eligible for charity tax relief when paid through a limited company. 

To do this, deduct the value of the donation from your total business profits before you pay tax. Not all payments qualify for deduction. These are the payments that don’t qualify for deduction: 

  • Loans that will be repaid by the charity
  • Payments made on the condition that the charity will buy property from your company or anyone connected with it
  • A distribution of company profits (e.g dividends)


Equipment and trading stock

Your limited company pays less corporation tax if it gives equipment or items it makes or sells.

  • Giving equipment. You can claim full capital allowances on the cost of equipment. To qualify, the equipment must have been used by your company. This includes things like, office furniture, computers and printers, vans and cars, tools and machinery.
  • Giving trading stock. If your company donates its trading stock to a charity or CASC, you don’t have to include anything in your sales income for the value of the gift. This means you get tax relief on the cost of the stock you’ve given away.

If your company is VAT-registered, you’ll need to account for VAT on the items you give away.

However, you can apply zero VAT to the items – even if you normally charge the standard or reduced rate – if your company makes the donation specifically so that the charity can sell the items, hire out the items or export the items.

This means you can reclaim the VAT on the cost of the trading stock you donate.

If you can’t zero rate the items, use the VAT rate you normally apply to them.

Land, property and shares

Your limited company can claim corporation tax relief if you give or sell land, property, or shares in another company (not your own) to a charity. This way you won’t have to pay tax on capital gains and you can deduct the value of the gift (its ‘market value’) from your business profits before you pay tax.

Meanwhile, if you are going to donate or sell land, property and shares to a community amateur sports club (CASC), you don’t have to pay on capital tax gain; however, you can’t deduct the value of the gifts from your business profits. 

When donating these to a charity, it is very important that you contact your charity first to ensure they will accept your gift. If they accept it, you must properly document and record the gift acceptance.

Seconding employees

Employees of your limited company may be transferred temporarily to work for a charity. For employee secondment, you must still continue to pay your employee and run PAYE on their salary. You can set the costs including wages and business expenses against your taxable profits as if they were still working for you.

While you can deduct any costs as normal business expenses for secondment or volunteering, you cannot claim the cost if they work temporarily or volunteer at a community amateur sports club (CASC).

 

Charity Sponsorship

charity donation trough limited company

If your limited company is sponsoring a charity, you have to understand that it’s different from donating as you get something in return. For this case, you have to deduct sponsorship payments from your business profits before you pay tax by treating them as business expenses.

There are qualifications for payments that qualify as business expenses. The charity must publicly support your products or services, allow you to use their logo on your own printed material, allow you to sell your goods or services at their event or premises, and link their website to yours. 

 

How to claim charity tax relief

The way you claim tax relief from charity donations depends on the type of donation you give. Below is a simple table you can use to check how you should claim charity tax relief.

Type of donation
Way to claim tax relief
Money donation
Deduct it from your profits
Giving or selling land, property or shares
Deduct it from your profits
Equipment donation
Claim capital allowances
Seconded employees
Deduct it as a business expense
Sponsored a charity
Deduct it as a business expense

 

What to consider when donating

Giving a donation to charity is great! However, there are few considerations you need to keep in mind when you are planning to donate. 

If you’re given something in return

There are some instances when a charity may thank you for your donation with a gift, such as tickets to an event. If you receive a gift, the value of the gift must be taken into consideration when claiming relief.  

Donation amount
Maximum value of benefit
Up to £100
25% of the donation
£101 – £1,000
£25
£1,001 and over
5% of the donation (up to a maximum of £2,500)

Donating more than your profit

You cannot donate to charity if you do not have enough profits! The most you can donate is an amount that reduces your company’s profits to zero. 

If you donate more than your total profits you can’t declare trading losses on your tax return and carry over any remaining amount to your next tax return.

Orissa Children

The GrowFactor team have recently committed to raising £3000 for an amazing charity called the Friends of the Children of Orissa. We will have a Non-Stop 2000 Mile Challenge to Raise Money for Charity happening on February 6, 2020. Please help us reach our target by donating today!

DONATE HERE

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