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Giving to Charity Through Your Limited Company

Giving to charity

We all have causes that are close to our hearts and giving to charity is something many of us want to do. It makes us feel good, makes our world a better place and it might even be good for our health. There are two ways you can give to charity and both can form part of your overall tax planning strategy. You can donate through your limited company and potentially pay less Corporation tax or donate personally and reduce your personal tax liability.

Giving to charity through your company

Your limited company pays less corporation tax when it donates any of these qualifying gifts to charity:

  • Money
  • Equipment or trading stock
  • Employees (on secondment)
  • Sponsorship payments.

Donating money

Any money you donate is usually tax deductible. You cannot create a taxable loss in your company by giving to charity, so at most you can reduce your profit to nil.

A donation will not be tax deductible if it’s a loan that the charity will repay, or if the charity must buy something from your company as a condition of the donation. You can receive a “thank you” from the charity in the form of a token gift, tickets to an event etc but there are limits to the level of reward you can receive before the donation becomes disallowable.

Amount Donated Maximum value of gift
£100 or less 25% of the donated amount
£101 to £1000 £25
£1001 or more 5% of the donated amount, up to a maximum of £2,500

Equipment

If you are about to upgrade your businesses equipment, for instance your IT systems and computers or office furniture you can donate used equipment to a charity. You will have claimed full tax relief on the assets in your business and you don’t have to repay this when disposing of the assets by way of a donation.

Trading stock

If you donate “stock items”, consumables that your company buys and sells, you can claim the tax relief on the cost of the item in your company and don’t need to recognise any sales income.

 If you ae VAT registered you’ll need to account for VAT on any stock you give to charity. If your donation is intended for sale, hire or export by the charity you can apply zero VAT.

Employees

If your company has employees you can offer their services to a charity and claim the cost as a business expense. You’ll still need to pay them and make PAYE deductions as normal.

Sponsoring a charity

If you sponsor a charity you’d usually expect to get something out of it. For example, they might include your company logo on their website, or recommend your services. You can claim any such costs as a business expense.  These costs would be classified as sponsorship costs as opposed to a donation.

Donating personally

As an alternative to giving to charity through your Limited company you can make the gift personally from your own income.

Donations by individuals to charity are tax free. This is called tax relief.

The tax goes to you or the charity. How this works depends on whether you donate:

Gift Aid

Donating through Gift Aid means charities can claim an extra 25p for every £1 you give. It won’t cost you any extra.

You need to make a Gift Aid declaration for the charity to claim. You usually do this by filling in a form. You must give a declaration to each charity you want to donate to through Gift Aid.

Paying enough tax to qualify for Gift Aid

Your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year (6 April to 5 April).

The tax could have been paid on income or capital gains.

You must tell the charities you support if you stop paying enough tax.

Higher rate taxpayers

If you pay tax at the higher or additional rate, you can claim the difference between the rate you pay and basic rate on your donation.  Do this either:

Example

You donate £100 to charity - they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).

You need to keep records of donations if you want to claim tax back on them and you

If you’re claiming tax back through your Self Assessment tax return or by asking HM Revenue & Customs (HMRC) to amend your tax code keep records showing the date, the amount and which charities you’ve donated to

Giving to charity straight from your wages or pension

You can donate to charity through a Payroll Giving scheme, you can donate straight from your wages. This happens before tax is deducted from your income.

The tax relief you get depends on the rate of tax you pay. To donate £1, you pay:

  • 80p if you’re a lower rate taxpayer
  • 60p if you’re a higher rate taxpayer
  • 55p if you’re an additional rate taxpayer

Leaving gifts to charity in your will

Your will says what will happen to your money, property and possessions after you die.

Your donation will either:

  • be taken off the value of your estate before Inheritance Tax is calculated
  • reduce your Inheritance Tax rate, if more than 10% of your estate is left to charity

You can donate:

  • a fixed amount
  • an item
  • what’s left after other gifts have been given out

If you have questions about giving to charity or if Orange Genie can help in any way please call our expert team on 01296 468483 or email info@orangegenie.com. 

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