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:
- equipment or trading stock (items it makes or sells);
- land, property or shares in another company (shares in donating company’s own company don’t qualify);
- employees (on secondment);
- sponsorship payments.
This tax relief works differently than that for individuals, self employed sole traders and partnerships.
Claiming corporation tax relief on gifts to charity
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:
- donates money;
- gives or sells land, property or shares.
If a company gives land, property or shares to charity, it calculates its tax relief amount by:
- working out the value of the gift on the date the company transferred it;
- adding costs such as legal fees or brokers fees;
- subtracting the value of any benefits the charity gives the company as a result of the gift.
A company can deduct costs as normal business expenses in its annual accounts if it:
- seconds employees;
- sponsors a charity.
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:
- donation of £0 – £100: 25% of the donation or less;
- donation of £101 – £1,000: £25;
- donation of more than £1,000 – 5% of the donation (up to a maximum of £2,500).
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:
- publicly supports a donating company’s products or services;
- lets the company use their logo in company printed material;
- allows the company to sell its wares or services at their event or premises;
- links from their website to the company’s.
Payments that don’t qualify for corporation tax relief
Donations made to charity will not constitute qualifying donations for the purposes of corporation tax relief if they:
- come with a condition specifying repayment (eg, a loan);
- are made on the condition that the charity will buy property from the company or anyone connected with it;
- are a distribution of company profits (eg dividends).
Will the charity be required to make a Gift Aid repayment?
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.