Giving to Charity and What it Means for Tax

Often, businesses hold workplace activities to raise money for a charity close to their heart. This can be anything from marathons to bake offs to dress down days. But, as a company, do you know what giving to charity means regarding tax?

What is the tax relief?

If you’re a limited company and you give a monetary donation to charity, 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 will need to keep records of this.

Exemptions

There are some important exemptions where payment won’t qualify if:

  • It’s in the form of a loan that will be repaid by the charity; or
  • 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.

Also, if you, your company or anyone connected to your company receive any benefits in return for your donation (for example, tickets to a dinner event) there are limits imposed on the value of such rewards.

Donations by individuals, sole traders or partnerships

Donations can be made by individuals to charity or to community amateur sports clubs (CASCs). The tax goes to you or the charity. How this works depends on whether you donate:

  • through Gift Aid
  • straight from your wages or pension
  • through a Payroll Giving scheme
  • as land, property or shares
  • or in your will

This also applies to sole traders and partnerships.

So, in summary, if you’re a limited UK company and you donate to a registered charity with no direct benefit to the donor, then a corporation tax deduction will usually be permitted. For further reading on this, we recommend the gov.uk website.

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