Charity donations

Is it OK for my business to donate to charity?

How do I get tax relief on my charity donations?

What is Gift Aid

Gift Aid rules

Gift Aid is a special tax relief for UK income taxpayers, who confirm to the charity that they are making the donation under the Gift Aid regime.

Under Gift Aid the charity can recover basic rate tax on your donation, making it worth more; so if you are an income taxpayer then do make your donations under gift aid.

Community amateur sports clubs as well as charities can benefit from this scheme.

But beware – if you have insufficient income to pay income tax, then you may get a tax bill for the tax you are claiming to have paid.

Company’s do not pay income tax so cannot make Gift Aid donations.

Personal Tax deduction

A higher or additional rate taxpayer may be able to claim additional tax relief on donations via their personal tax return – so keep a record.

Such donations can be

  • To registered charities via gift aid,
  • To community amateur sports clubs, or
  • Of land, property, or shares

This can be a very useful way of reducing taxable income when just over the next tax band or in danger of losing allowances including married allowance, tax credits or child benefit.

Business rules

Any business may donate to charity and may get tax relief by deduction from current year’s business profits – unless the payment has been made under Gift Aid above.

A business can expect to get tax relief on gifts that:-

  • Are local to that business, by way of location or line of business, and hence can earn it goodwill.
  • Are small as regards its turnover – e.g. under 5%

Purchase of advertising is a general business expense not a donation.

There is a limit to the amount that may be tax allowable for company donations – the profit of that company year.

Larger donations and political donations may need to be declared in the company accounts.

Beware donations that are too personal as these could be disallowed or considered a benefit in kind rather than a donation; challenged cases include:-

  • Excessive sponsoring of a director’s son’s football team – kit and advertising
  • Sponsoring a director’s daughters personal Gymkhana kit
  • Paying the director’s expenses to take part in an extreme marathon.

Donations with rewards, e.g. charity auctions, may not be tax deductible if the value of the benefit is excessive; acceptable value of such benefits are:-

  • Under 25% for donations under £100,
  • Under £25 for donations between £101 and £1,000
  • Under 5% and £2,500 for donations over £1,000

These rules apply to all benefits received by anyone connected to the company and their close relatives.

Donations

The above rules do not just apply for cash donations but can apply for donations of second-hand clothes, personal items or equipment used in the business.

Such donated items may be valued before being sold by the charity to determine the donation value for the donor and the split between donation and reward for the buyer.  Alternatively the charity can sell the item on behalf of the donor and then record the proceeds as the donation, however the buyer can then not be said to have made any donation.

Donations could be of trading stock, stocks and shares in other businesses, or land, all at market value.

Donations may also arise when a business seconds workers to a charity, or is seen to actively sponsor or partner with a specific charity.

Beware donating tax refunds, as if excessive then a charity is not allowed to make refund to you.

Payroll Giving Scheme

If donating to charity on a regular basis then your employer may operate a payroll giving scheme that you may use

  • to get full tax relief,
  • at whatever rate of tax you pay,
  • on every penny of your donation,
  • up front before your tax is calculated.

Remember HMRC say all donations to charity should be tax free

– so make it so-