Tax-efficient charity donations through your limited company

Contractors and consultants can make charity donations and save money on their tax bill. As an owner of a limited company you can give to worthy causes and reduce your corporation tax.

If you give money or resources to a charity or community amateur sports club (CASC) your corporation tax bill is reduced. Essentially the amount you donate is deducted from your business profit pre-tax, therefore reducing the amount of tax your company pays.

Charity donations from your company

There are various types of contributions that your company can make. Some of these are:

  • Money
  • Equipment
  • Trading stock (items you make or sell)
  • Land, property and shares in another company
  • Employee time (seconding employees)

You can also fund charities and CASCs through sponsorship. The money you give is classed as sponsorship if you receive something of material value above certain limits set by HMRC. We’ve detailed the limits below.

We’ve detailed the requirements for each type of donation and giving through sponsorship below, plus how you should record them in your financial records.

Donating money

There are rules which you need to adhere by for the donation to qualify as tax free.

Your payment won’t qualify if:

  • It is a loan that will be repaid by the charity;
  • The payment is on the condition that the charity buys property from your company or anyone connected to it; or
  • The Payment is a distribution of company profits i.e. dividends.

There are also restrictions on payments if you, your company, or any connected person receives anything in return for the donation.

There are maximum values for benefits given in return for the donation:

Donation value Maximum allowable benefit value
£100 or less  25% of the donation value
£101 to £1,000 £25
£1,001 or more 5% of the donation value (to a maximum of £2,500)

If you receive benefits that are of a higher value than stated in the above table, your donation is then classed as a Sponsorship Payment. See the section of Sponsorship payment for more information.

Equipment

Your limited company can give used equipment to a charity. This is a great way of donating to a cause as well as reusing the equipment and therefore improving your green credentials.

You can donate items such as:

  • Office furniture
  • Computers and printers
  • Vans and cars
  • Tools and machinery

You can claim the full capital allowances on the cost of the used equipment you donate through your company tax return. If you donate company equipment to charity, it’s best to ask your account manager for advice on how to record this in your inniAccounts asset register.

Trading stock

Trading stock is items your company makes and sells. When you donate company trading stock you can deduct the full cost of the items from your business profits before you pay tax.

If you are VAT registered, you need to account for the VAT on the items you donate. You can apply zero VAT to the items (even if you normally charge the standard or reduced rate) if the donated items are specifically for sale, hire or export by the charity. That way you can reclaim the VAT on the cost of the items you donate.

Land property and shares

If you give or sell land, property or shares in another company (a company other than your own), you don’t have to pay tax on capital gains and you can deduct the market value of the gift from your business profits pre-tax.

If you donate or sell to a CASC, you don’t pay tax on capital gains but you CAN’T deduct the market value of the gift from your pre-tax business profits.

Market value

Market value is the value that the gift would sell for in an open market. You need to ascertain the market value of the gift to calculate your tax relief and we would recommend using a professional to provide an impartial valuation.

Records

All records that relate to the donation that evidence the gift or sale to the charity must be retained for at least six years. The records required are detailed below:

Land or property Shares
A letter or certificate from the charity which contains:

  • A description of the land or property;
  • The date of the gift or sale (the disposal date); and
  • A statement confirming that it now owns the land or property.
A block transfer form showing the transfer of shares from your Company’s name into the Charity’s name.

When you offer a gift of land, property or shares, the charity may ask you to sell the gift on its behalf. In this instance you are required to retain records of the gift and the charity’s request – without this, you may be required to pay Corporation Tax.

Employee time (seconding employees)

If your company temporarily transfers an employee (secondment) or an employee volunteers for a charity in work time, you can deduct any costs as normal business expenses.

Continue to pay the employee (which can be yourself) and run PAYE on the salary as usual. You can deduct the costs (including wages and business expenses) from your taxable profits as if they are working for you as normal.

You can’t claim the costs if they volunteer or are seconded to a CASC.

Record the hours spend in secondment or volunteering as you would normally within your timesheets to enable you to pay them as normal. Ensure the time is allocated to the Charity rather than your clients.

Sponsorship

Sponsorship is when you give to charity and your business gains something related to the business in return.

You deduct sponsorship payments from your business profits pre-tax by treating them as business expenses and therefore reducing your corporation tax.

Sponsorship payments qualify as business expenses if the charity:

  • Publicly supports your products or services;
  • Allows you to use their logo in your own material;
  • Allows you to sell your goods or services at their event or premises; or
  • Links from their website to yours.

If you’re not sure if a charity payment qualifies as a sponsorship payment or a donation, you can contact the HMRC Charities helpline on 0300 123 1073.

How to claim tax relief

You need to record our charity donations and payments correctly in order to obtain tax relief.  The type of payment or donation governs where and how you record the transaction.

Deducting from company profits

You can claim relief through your company tax return for the accounting period when you made to donation or sale for:

  • Donated money;
  • Trading stock; and
  • Land, property or shares.

You need to record any donations you make in your inniAccounts software. Please contact your account manager so that a specific category is set up for you to use.

Deducting as a business expense

You can deduct the costs of giving to charity as a business expense for:

  • Seconded employees; and
  • Sponsorship of a charity.

Simply record the item as a business expense in the usual way.

Claiming capital allowances

You can claim capital allowances on the cost of equipment you donate through your company’s annual accounts submission.

Next steps

If you are unsure how to record your charity donations and sponsorships, just speak to your account manager who can run you through the process to ensure that you record the details correctly to obtain the correct amount of tax relief.