Are there any advantages in my business in giving to charity?

Giving money to charity

Giving money to charity in its most basic form should simply be concerned with helping out with a specific cause by giving money to a charity which has links with, represents or is running a campaign in relation to a certain issue.

However, there are also certain tax benefits which can be enjoyed by businesses rather than individuals when making donations to charity.

Companies giving gifts to charities

When companies make gifts of money to charities there are able to gain tax relief. This tax relief works differently than that for individuals, self employed sole traders and partnerships.

Businesses therefore have certain Corporation Tax benefits when providing money to charity.

Claiming Corporation Tax Relief on gifts to charity

Monetary Gifts made to a specific charity by an individual company should be paid gross – before any tax is deducted. These donations will therefore be deductible form the total profits of the business making the donation when calculating Corporation Tax.

Will the Charity be required to make a Gift Aid repayment?

There is no requirement placed on the charity to make a gift aid repayment claim as no tax has been paid on the original donation. This therefore means that the individual charity can claim exemption from tax on company donations.

How can I ensure that my company can claim Corporation Tax Relief?

When a company makes a qualifying donation to a particular charity the amount paid to that charity will be treated as a non-trade charge.

What is meant by a non-trade charge?

A non-trade charge means that the company that has made the payment can make a claim in its Company Tax Return to set the amount of the donation of against the taxable profits of the company.

How should I ensure that I do this properly?

An individual company should keep normal accounting records which are able to support entries on their Company Tax Return. Furthermore an individual company should always ensure that any other relevant documentation is kept on file – an example of other relevant documentation may be any correspondence with the charity in relation to the donation.

What kind of donations will qualify for Corporation Tax Relief?

A company will be able to claim relief for corporation tax as long as the payment of money made to the charity is not a distribution of profit – such as a dividend.

Qualifying donations

A donation will qualify for corporation tax relief where any benefits provided to the company or a connected person must fall below certain limits.

What is meant by a connected person?

An individual person will be regarded as a connected person if they fall into one of the below categories:

  • If they are the donor’s husband, wife, civil partner or linear relative – the term linear relative will apply to the following:
    • Son
    • Daughter
    • Parent
    • Grandparent
    • Grandchild
  • Any linear relative of the donor’s wife, husband or civil partner
  • A company under the control of the donor
  • A company under the control of any of the above mentioned relatives

What are the benefit value limits that a donation must fall below?

The following are the benefit value limits that a donation must fall below in order to qualify for corporation tax relief:

  • Donation of £0 – £100 – benefit value limit of 25% of the donation
  • Donation of £101 – £1,000 – benefit value limit of £25
  • Donation of over £1,000 (donated before 5 April 2007) – benefit value limit of 2.5% of the donation
  • Donation of over £10,000 (donated before 5 April 2007) – benefit value limit of £250
  • Donation of over £1,000 (donated after 6 April 2007) – benefit value limit of 5% of the donation
  • Donation of over £10,000 (donated after 6 April 2007) – benefit value limit of £500

Are there any donations to charity made by companies which will not qualify for corporation tax relief?

The following donations made to charity will not constitute qualifying donations for the purposes of corporation tax relief:

  • Gifts that come with a condition specifying repayment
  • Gifts where the company or a person connected to the company has received a benefit in return over the above benefit value limits
  • Gifts that come with a condition or arrangement that the charity will purchase property – other than as a gift – from your company or from a connected person

Are there any time limits for claiming Corporation Tax Relief?

An individual company should ensure that they claim for the relief in the accounting period in which the company makes the charitable donation.