Making charitable donations through your limited company

Many of us have causes that are close to our hearts and if you are running your business as a limited company, you can factor in donations to charity as part of your overall tax planning strategy.

When you give to charity through your limited company, you will pay less corporation tax by deducting the value of your donations from your business profits. The most you can deduct is the amount that reduces your company’s profits to zero.

You can claim tax relief in this way on various types of donation:

• Money
• Equipment & trading stock
• Land, shares or property
• Employees on secondment
• Sponsorship

In practice you can donate more than your company profits, but if you do this you cannot declare trading losses on your tax return or carry over any remaining amount to your next tax return.

Monetary donations

Money given to charity by your limited company is generally tax deductible. However, there are some exceptions. You are not entitled to tax relief on payments that the charity will be repaying as a loan or donations that that are made on the condition that the charity will buy something from your company. You will also not receive tax relief on any funds given to charity as a distribution of company profit (dividend).

A charity may give you something as a thank you for your donation, tickets to an event or fundraiser for example. However, there are limits imposed on the value of such rewards:

Donation Amount – Up to £100 Maximum Value of Benefit – 25% of the donation

Donation Amount – £101 to £1,000 Maximum Value of Benefit – £25

Donation Amount – £1001 + Maximum Value of Benefit – 5% of the donation (capped at £2,500

Equipment and trading stock

You can claim full capital allowances on equipment that you donate to charity.

What you donate must have been used by your limited company. For example, you might upgrade a company laptop and give your old one to a local charity for their use.

Other equipment which would qualify is office furniture, company vehicles and tools or machinery.

Trading stock is the term for products that your company makes or sells. If you give any away to a charity, you get tax relief on its value by not including it as sales income.

If your company is VAT-registered, you will have to account for VAT on any equipment or trading stock that you donate. However, if your intention is for the charity to sell, hire out or export the items, zero rate VAT can be applied.

Land, shares or property

You can claim corporation tax relief on any land, property or shares in another company (not your own company) which you give to charity. This works by deducting the market value of the donation from your profits, before tax is calculated.

When gifting land or property to a charity there is a bit of a paper trail. You will need to obtain a letter from the charity describing the land or property, the disposal date and a statement confirming that they now own it. You will need to keep this documentation for a minimum of 6 years.

If you offer to sell the donation on the charity’s request you can still claim tax relief, but you must keep records to prove the charity has asked you do this.

Employees on secondment

If your limited company employs staff, you can offer out their services to charity and deduct the costs as a normal business expense. You’ll still need to pay them and deduct PAYE tax as normal.

Sponsorship

Sponsoring a charity is slightly different from donating because your company gets something out of it in return. For example, the charity might publicly endorse your company’s products or services or include your company logo on their branded material and website. This qualifies as sponsorship and you can treat the cost as a business expense.

Not running a limited company?

There are different rules for charitable donations if you are operating as a sole trader or partnership. For details, or if you have any questions about giving to charity through your business, you should seek advice from your accountant or HMRC.

Got a question? Get in touch and email david@landiaccounting.com