There are a number of incentives to encourage businesses to support UK, EU Norwegian and Icelandic charities.
What is the most tax-effective way for my company to donate money to charity?
Your business can claim tax relief on donations of money to charity under corporate Gift Aid. The way this works depends on whether your business is a company, you are a sole trader or trading partnership. Whilst charities can thank you, there are limits on what they can give as a token of appreciation - further information on the
Gift Aid benefit rules
To give through Gift Aid, your company simply makes a gift of money to charity and deducts that amount from its total profits before calculating its corporation tax. Therefore, the company receives corporation tax relief on the full donation.
Corporate Gift Aid works slightly differently from
Individual Gift Aid
and your company does not need to complete a Gift Aid declaration or deduct any tax from the donation.
Gift Aid donations from the self-employed are treated in the same way as gifts from individuals - further information about
Gift Aid for individuals
. These gifts will be treated as paid from taxed income and the charity will claim the relief on qualifying donations from sole traders.
These gifts should be accompanied by a Gift Aid declaration. If you pay tax at a higher rate, you can reclaim the difference between the basic rate of tax claimed by the charity in Gift Aid and the higher rate you pay on the gross gift. For more information, - information on
Gift Aid and higher rate taxpayers
. To make the reclaim, you simply identify donations made to charity on your tax return.
If your business is run as a partnership, your donations will be eligible for Gift Aid in the same way as donations from individuals. Generally, the donation will be split into equal amounts from each of your individual partners, unless you decide it should be split differently and so notify the charity.
Each partner must complete a Gift Aid declaration; this can be done on a single form, providing it contains the relevant details for each partner, unless your governing documents allow one partner to sign on behalf of the organisation. More information about
Gift Aid declarations
. The same principle applies for
higher rate taxpayers as for individual donors and sole traders
. You could potentially reclaim the difference between the highest rate of tax paid and the amount claimed by the charity.
Can we receive any benefits in return for our donation?
A charity can give your business a small token of appreciation for any donations, such as a newsletter or badge, but these benefits cannot exceed the value of those allowable for individual donors as set out by the
Gift Aid benefit rules
. The benefit limits must be as shown below:
|0 – 100
||25% of the gift
|101 - 1,000
||5% of the value of the gift (maximum 500 in one year)
If your business has freely given a donation and receives nothing in return, the gift is outside the scope of VAT. However, if you receive tokens of appreciation beyond a simple acknowledgement, then the donation may be considered by HMRC to be sponsorship, where specific rules apply.
What if we give property, land or shares?
Your business can claim Corporation Tax relief on the value of property, land and shares donated to charity. You can also claim the relief if you sell them to a charity at less than the market value. Gifts will also be exempt from Capital Gains Tax.
If your business donates UK property (land or buildings) to charity, it is entitled to claim relief based on the value. The charity must agree to accept the gift and should give you a certificate when the gift is received.
You can give shares (other than your own) to charity and claim tax relief on the shares equal to the market value on the day the gift is made, minus associated costs such as brokers’ fees. The relief can also be claimed if you sell the shares to charity at less than the market value. In this situation the relief is deducted from the difference between the market value and the proceeds received from the charity.
How do we claim the relief?
If your business is a company, it can claim the relief by entering the amount into the Charges paid box of its Corporation Tax
Self Assessment return
for the accounting period in which you made the gift.
For Partners or self-employed, details are entered on to the Income Tax Self Assessment form. In addition, any gain made on the gift is exempt from capital gains tax.
The deduction is made against the full market value of the gift, less anything received in return.
Although your assets have been donated rather than sold, the donation may still have to be treated as a sale for VAT purposes. If you are considering this course of action, you should consult
Sponsorship is a complex area for tax purposes. Your company can get a tax deduction for payments to sponsor charitable activities if they are also made for the purpose of the company. This might be a payment to get publicity for your company or its products that can be regarded as a reasonable value for the amount paid. The position will depend on the facts in each case. HMRC will be able to provide you with further clarification.
Can we claim tax relief for employees on loan and volunteers?
Nearly one quarter of employees work for employers that support volunteering schemes. Of these employees, two-fifths have participated in the past 12 months. This is equivalent to approximately 1.5 million people.
If your employees are seconded to a charity or volunteer during work time and you continue to pay their salary, you can deduct the costs associated with employing that person as if they were at work. You simply treat the expenditure as a normal business expense when calculating profits for tax purposes.
This applies to sole traders, trading partnerships and companies with a trading or investment business.
Agreeing to run a
scheme for employees or to re-promote an existing scheme is an excellent way for your company to help charities. The costs of setting up a scheme and the modest ongoing costs of running the scheme are deductible for tax purposes.
The Quality Mark Awards scheme rewards employers for fostering a culture of committed giving in the workplace by actively promoting Payroll Giving.
The Payroll Giving Quality Mark Certificates are issued annually to all employers with a Payroll Giving scheme in place that achieve specified levels of participation.
National Payroll Giving Excellence Awards
The National Payroll Giving Awards event is held annually in October to celebrate the efforts of employers, charities and professional partnerships in promoting Payroll Giving in the workplace. Any employer who has achieved a Bronze, Silver or Gold Payroll Giving Award Certificate is eligible to apply for entry to the National Payroll Giving Awards.
The Awards and Event are funded by HM Government, organised in conjunction with the Institute of Fundraising and administered by the Payroll Giving Centre.