We all have causes close to our hearts, and if you are contracting through a limited company, you can factor in donations to charity as part of your overall tax planning strategy.
This guide explores how you can make tax-efficient charitable donations via your limited company.
Giving to charity – the basics
When you give to charity through your limited company, you will usually 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 cannot carry forward any excess to a later period.
You can claim tax relief in this way on various types of donation:
- Money
- Equipment and trading stock
- Land, shares or property
- Employees on secondment
- Sponsorship
In practice, you can donate more than your company’s profits, but you cannot declare trading losses on your tax return or carry over any remaining amount to your next tax return if you do this.
Monetary donations
Money given to charity by your limited company is generally tax-deductible. However, there are some exceptions.
You are not entitled to tax relief on payments that the charity will be repaying as a loan or donations made on the condition that the charity will buy something from your company.
You will also not receive tax relief on any funds given to charity as a distribution of company profit, such as a dividend.
Remember you cannot claim tax relief if:
- The donation is structured as a loan, which the charity must repay
- The donation is conditional on the charity buying something from your company or a connected person
- The donation is made as a distribution of profits, for example, a dividend
A charity may offer you something as a token of appreciation for your donation, such as tickets to an event or fundraiser. However, there are limits imposed on the value of such rewards:
| Donation amount | Maximum value of benefit |
|---|---|
| Up to £100 | 25% of the donation |
| £101 to £1,000 | £25 |
| £1,001 and above | 5% of the donation, capped at £2,500 |
Equipment and trading stock
You can claim full capital allowances on equipment that you donate to charity.
The donation you make must have been used by your limited company. For example, you might upgrade a company laptop and give your old one to a local charity for their use.
Other equipment which would qualify is office furniture, company vehicles and tools or machinery.
Trading stock is the term for products that your company makes or sells. If you give any away to a charity, you get tax relief on its value by not including it as sales income.
If your company is VAT registered, you must account for VAT on any equipment or trading stock you donate.
However, if your intention is for the charity to sell, hire out or export the items, zero rate VAT can be applied. Where zero rating applies, you can normally reclaim input VAT on the cost of the items as usual.
Land, shares or property
You can claim corporation tax relief on any land, property or shares in another company (not your own company) which you give to charity. This works by deducting the market value of the donation from your profits before tax is calculated.
When gifting land or property to a charity, there is a certain amount of paperwork involved.
You will need to obtain a letter from the charity that describes the land or property, specifies the disposal date, and includes a statement confirming that they now own it. You will need to keep this documentation for a minimum of six years.
If you offer to sell the donation at the charity’s request, you can still claim tax relief, but you must keep records to prove the charity asked you to do this.
Employees on secondment
If your limited company employs staff, you can temporarily offer their services to a charity and deduct the costs as a normal business expense. You will still need to pay them and deduct PAYE tax as normal.
Sponsorship
Sponsoring a charity differs from donating because your company receives something in return for the payment.
For example, the charity might publicly endorse your products or services or include your company logo on its branded material and website. This qualifies as sponsorship, and you can treat the cost as a business expense.
To qualify as a business expense, HMRC expects you to show a clear promotional or advertising benefit to your company. Keep evidence of the benefit, for example branding, links and mentions, or event exposure.
What about personal donations?
If the amounts are relatively small, it may be simpler to donate in your own name rather than through your company.
By using Gift Aid, the charity can reclaim basic rate tax, so your donation is worth more at no extra cost.
Make sure you have paid enough tax in the year to cover the amount the charity reclaims from HMRC.
Not running a limited company?
There are different rules for charitable donations if you are operating as a sole trader or a partnership.
For details, or if you have any questions about giving to charity through your business, you should seek advice from your accountant or HMRC.
You can read the official GOV.UK guide to charitable donations via your company here.
If you are considering a large donation or a season-long sponsorship, talk with your accountant first to make sure the payment is structured correctly and that you obtain the relief you are entitled to.
