Our tax preparation specialists tell you about the tax reliefs available when your business gives to charity
At DSR Tax Claims Ltd, we know that making sure you have claimed all the tax relief you are eligible for can sometimes be a tricky task. That’s why our experts want to help make life as easy as possible for you by sharing our specialist knowledge with you. So, whether you are wanting more information about VAT or need to know about charitable tax relief, our handy guides are here to help. All our information is based on HMRC sources, so you can rest assured that these guides are filled with helpful and accurate information.
What happens when your limited company gives to charity?
Your limited company can get tax relief, in the form of paying less Corporation Tax, when you give any of the following to charity:
- Sponsorship payments
- Equipment or trading stock
- Land, property or shares in another company (shares in your own company don’t count)
- Employees on secondment
To claim this tax relief you need to calculate the value of your charitable donations and then deduct from your business profits before Corporation Tax.
The rules are different for sole traders and partnerships – such donations are tax free in these instances.
What happens when your limited company donates money?
Your limited company can offset its charitable donations against Corporation Tax if it gives money to a charity or CASC (community amateur sports club). To do this, calculate the value of your donation and deduct it from your total business profits before tax.
However, there are some payments to charity that aren’t deductible:
- You can’t deduct loans that the charity will repay at a later date
- You can’t deduct any payments that are made on the condition that the charity will buy property from your company, or anyone associated with your company
- You can’t deduct payments which are a distribution of company profits, such as dividends.
If you receive anything in return for your donation, such as a gift or tickets to a charity event, they must be below a certain value. This includes any benefits given to a person with close connections to your limited company, such as a spouse or close relative. The values are shown in the following table:
|Donation amount||Maximum benefit of value|
|Up to £100||25% of donation|
|£101 to £1,000||£25|
|£1,001 and over||5% of the donation up to a maximum of £2,500|
If you receive a benefit that is related to the company, your donation will be classed as a sponsorship payment and may be treated differently.
What happens if your limited company sponsors a charity?
Sponsorship payments are considered to be different to charitable donations because it is expected that your limited company will get something business-related in return (such as publicity or advertising).
As a result, sponsorship payments should be treated as business expenses and deducted from your business profits before you pay tax.
To qualify as a sponsorship payment, the following should apply:
- If the charity publicly supports your products or services
- If the charity allows you to use their logo in your own printed information and promotional material
- If it links from its website to yours
- If it allows you to sell your goods or services at its events or premises
If you’re not sure whether your payment to a charity would be classed as a donation or a sponsorship payment, you can contact the charities helpline for guidance. You can reach them on 0300 123 1073 between 8.30am to 5pm on Mondays to Fridays.
What if your limited company donates equipment or stock to a charity?
Your company will have to pay less Corporation Tax if it donates equipment or stock that it makes or sells (also known as trading stock) to a charity or CASC.
If your company gives equipment, you can claim full capital allowances on the cost of the equipment to your company. However, the equipment must be items which have been used by your company such as office furniture, tools and machinery, computer equipment or even vehicles.
If your company donates its trading stock, you don’t need to include anything in the sales income for the value of the charitable donation so you get tax relief on the cost of the stock you have given away.
If your limited company is registered for VAT, you will need to account for the VAT on the items you have donated. You can apply zero-VAT to the items, even if they ate normally charged at standard or reduced rate VAT, if your company has donated the stock to a company specifically for the reason that it can sell, export or hire out the items. This allows you to reclaim the VAT on the cost of the stock you have donated. If this is not applicable to your donation and you can’t apply the zero-VAT rate, you need to use the normal VAT rate to account for them.
What if your limited company donates land, property or shares to a charity?
If your limited company gives or sells land, property or shares in another company other than your own to a charity, you could pay less Corporation Tax as a result. However, you can’t claim this tax relief on shares in your own company, whether sold or given to a charity.
It is advised that you contact the charity of your choice before you make these donations to check they can accept these kinds of gifts – not all charities will be able to.
If you make a donation of this kind, including selling these for less than their market value, you won’t have to pay any tax on your capital gains and you can deduct the market value of the gift from your business profits before tax.
The rules are slightly different if you donate these types of assets to a CASC (community amateur sports club). In this instance you will still be exempt from paying any tax on your capital gains but you won’t be allowed to deduct the value of your charitable donation from your business profits before tax.
Before you can claim this tax relief, you will need to calculate the market value of the charitable donation – that means how much you would have been able to sell it for on the open market. Although HMRC offers guidance on working out the market value of an asset, you might want to seek professional help with this.
You are required to keep documents relating to these types of charitable donations showing that you made the gift or sale to the charity and that the charity accepted the gift. These records need to be kept by your business for at least 6 years.
For land and property gifts: you must obtain a letter or certificate from the charity you gave them to which contains a description of the land or property, the date it was gifted or sold to the charity (also known as the disposal date) and a statement confirming that the charity now owns the land or property.
For shares gifted to a charity: you need to fill in a stock transfer form, which will take the shares out of your company’s name and assign them to your chosen charity.
If you are selling land, property or shares on behalf of a charity: it might be the case that after you have made a charitable donation of this kind, the charity asks you to sell the gift on its behalf. You will still be able to claim tax relief if this is the case but you will need to keep records of the charitable gift and the charity’s request that you sell them. If you don’t keep these records, you might be asked to pay Corporation Tax on the gift.
What if your limited company seconds an employee to a charity?
If your employees are seconded to a charity and you continue to pay their wages, you will be able to deduct these costs as normal business expenses. You can do this if your company temporarily transfers an employee to work on behalf of the charity (also known as secondment) or an employee volunteers to work for a charity during your business hours.
You will still have to pay the employee and run PAYE on their salary as though they were a normal employee. However, you can offset these costs against your taxable profits as though they were still working for you.
If your employee is seconded or volunteers to work for a CASC, you can’t claim the cost of these employees as a business expense. You can only claim this tax relief if the employee is going to be working for a charity.
How do you claim this tax relief?
How you claim will depend on the type of charitable donation you make.
Deducting from profits: you will claim relief in the Company Tax Return which covers the accounting period in which you have made the donation or sale if you have donated money or given land, property or shares. You need to enter the total value of your donations in the ‘Qualifying donations’ box in the Deductions and Reliefs section. Don’t forget that you will need to calculate the market value if you have donated land, property or shares.
Deducting as business expenses: you will use this method to claim tax relief if you have sponsored a charity or seconded an employee to a charity. Deduct the costs as normal business expenses in your annual accounts.
Claiming capital allowances: if you have donated equipment to a charity, this is how you will claim the tax relief on that donation.
If you have donated more than your business has made in profit in that accounting period, the most you can deduct is the amount that takes your company’s profits to zero. You can’t declare any trading losses on your tax return as a result of your charitable donation nor can you carry any remaining tax relief over to the next tax return.
How can DSR Tax Claims Ltd help?
We know that setting up a business can be hard work – there’s so much to think about and that’s before you start dealing with claiming the tax relief on your charitable donations. Our friendly team of tax specialists at DSR Tax Claims Ltd are on hand to help make life easier for you. We’re the experts at identifying your maximum allowable expenses so call us on 0330 122 9972 – we’re the tax experts you can trust.