When limited companies make one of the following gifts to charity or a community amateur sports club (CASC) they can claim tax relief and thus pay less corporation tax:
This tax relief works differently than that for individuals, self employed sole traders and partnerships.
Tax relief is claimed in different ways depending on what type of donation the company makes. A company should ensure it claims for the relief in the accounting period in which the company makes the charitable donation.
A company can subtract the value of its donations from its overall business profits before it pays tax if it:
If a company gives land, property or shares to charity, it calculates its tax relief amount by:
A company can deduct costs as normal business expenses in its annual accounts if it:
If the company donates equipment, the company can claim capital allowances on the cost of this in its annual accounts.
The most a company can deduct is the amount that cuts the company’s profits to nothing. If the company donates more than its total profits it can’t declare trading losses on its tax return or carry over any remaining amount to its next tax return.
If someone from the donating company receives a benefit from the charity in return for the donation (eg, tickets to an event), this must be below a certain value if the company wants to claim corporation tax relief. The limits are:
These limits also apply to benefits given by the charity to any person or company connected with the donating company, including close relatives.
If the donating company as a whole receives a benefit from the charity for its donation, this counts as a sponsorship payment. The company can deduct sponsorship payments from its business profits before its pays tax by treating them as business expenses. Payments qualify as business expenses if the charity:
Donations made to charity will not constitute qualifying donations for the purposes of corporation tax relief if they:
Gift Aid allows a charity or a CASC to claim back 25p every time an individual donates £1 to its charity. Charities can’t claim Gift Aid on donations from limited companies however.
Nicola is a dual qualified journalist and non-practising solicitor. She is a legal journalist, editor and author with more than 20 years' experience writing about the law.
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