Giving to charity from your business

With more businesses focusing on their Corporate Social Responsibility (CSR) than ever before, one of the questions we’re frequently asked by our clients is if they can make donations to charity (from their business) and if it’s tax deductible.

The answer, like most things, is ‘it depends’.

Sole traders

If you’re a sole trader, a donation to charity isn’t classed as a normal running cost of your business. So, any donations you make are treated in the same way as gifts from individuals. You can still claim tax relief if you make the donation using Gift Aid.

Gift Aid was originally introduced back in 1990, as a tax incentive to enable tax-effective giving to charities in the UK. When you Gift Aid a donation, the charity can claim back an additional 25% (basic rate tax) directly from HMRC. So, if you donate £20 to a charity under Gift Aid, the charity will then be able to claim an additional £5 back from HMRC.

At the point of donating through Gift Aid, you’ll be asked to declare that you’ll pay enough tax in that tax year to cover the additional money that the charity will claim from HMRC. If in that tax year you don’t pay any tax and have donated through Gift Aid, you will need to pay that money back to HMRC.

If you pay tax at a higher rate, you can reclaim the difference between the basic rate of tax claimed by the charity through Gift Aid and the higher rate you pay on the gross gift.

Limited companies

Your limited company will pay less tax when it gives to charity. You can claim tax relief by deducting the value of your donation from your business profits before you pay tax.

Charity sponsorship payments are different from donations as your company receives something in return. This means you can treat the payments as business expenses if the charity:

  • publicly supports your products or services
  • allows you to use their logo in your own printed material
  • allows you to sell your goods or services at their event/premises or through links from their website to yours

Most businesses will either donate money or make sponsorship payments but charitable support could also be through:

  • equipment or stock
  • land, property or shares in another company
  • employees (on secondment)

The rules are slightly different for the above points. There’s more information about these areas on the gov.uk site.

One important point to remember is that you can’t claim back more than the company’s profit for the year. So, if the business makes a small profit of £100 and has made charitable donations totalling £150, it will only be able to claim back £100.

If you’re considering donating or sponsoring a charity from your business and would like more information about the tax implications, please call me on 01604 330220 or send me an email.