Double benefit of business charity donations
As a business owner, your primary focus is always going to be maximising profit. However, as Winston Churchill once said: ‘we make a living by what we get, but we make a life by what we give’. Successful business owners can get a great deal of satisfaction out of giving to worthy causes. The good news is that charitable donations not only help the recipient, but can have benefits for the donor business as well, depending on the trading structure of the organisation.
If you are a sole trader or partnership, there are no specific business benefits from giving to charity as donations are treated as personal in the same way as individual ones. However, the good news is, if you do donate, the charity can get 25p tax relief for every £1 donated via Gift Aid, providing the necessary form has been filled in. Payments need to be noted in your annual self-assessment tax return; it’s important to ensure you pay enough tax overall to cover the value of the Gift Aid tax relief.
If your business is a limited company, you can reduce your corporation tax bill by giving money to a charity or community amateur sports club. The donation is deducted from taxable profit which therefore decreases the bill.
A limited company can also gain benefits from the following:
Donation of stock or equipment
If you make a donation of stock normally produced and sold by your company, you don’t need to include anything in your sales income for the value of this gift, which means you get tax relief on the cost of the stock.
If the stock consists of equipment previously used but not manufactured by your company – such as chairs and desks, tools or computers, you can claim full capital allowances on the cost of equipment.
If your company is registered for VAT, you’ll need to account for VAT on the items you give away. However, you can apply zero VAT if your company makes the donation specifically so the charity can sell, hire out or export the items. This means you are able to reclaim the VAT on the cost of the donated stock.
Employee time
If an employee of your company is seconded to spend a specific period of time with a charity, or volunteers during work time, you can still set the costs (including salary and expenses) against your taxable profits as you would do normally.
Property, land or shares in another company
You can’t claim for the gift or sale of shares in your own company, but you can if you give or sell shares in another company. If given to charity, capital gains tax is not payable, and you can deduct the value of the gift from your profits before you pay tax. If you donate land or property to charity, this will reduce your corporation tax bill in the same way as giving a financial donation. Care must be taken to ensure legal ownership is documented, and records of transactions must be kept for at least six years.
Here at Perrys Chartered Accountants we are proud to support many charities and projects, both local to our offices and nationally, as well as acting for a wide range of charities and not-for-profit organisations. Give our friendly and helpful team a call if you’d like expert advice on how your company could benefit from charitable donations while helping others and contributing to the community.