Making a donation to charity is a way for limited companies to get tax breaks on their Corporation Tax. Check the process of claiming tax relief when your limited company donates to charity.
Giving away certain assets to charity means a limited company would pay less Corporation Tax. The assets that qualify include:
There are different ways to claim the tax relief. As a rule, you will deduct the value of the donations from the total business profits before paying tax.
Note: As a sole trader or a partnership, you would need to follow different rules on tax relief when you donate to a charity.
You would pay less Corporation Tax when your limited company gives money to a charity or a community amateur sports club.
If so, you would deduct the value of donations from total business profits before paying the tax. HMRC has the list of registered CASCs for the current tax year.
There are some kinds of charitable money payments that do not qualify for tax breaks, such as:
Note: The rules change if you receive something in return for the charitable donation. There is a value threshold for any benefits that you get in return of a donation (e.g. invitation tickets to an event).
The same rules apply to any benefits given to a person or other company with connections to your company (including close relatives).
Note: Receiving a benefit related to the company means the donation would qualify as a sponsorship payment (see below).
You would pay less Corporation Tax when your limited company gives equipment or 'trading stock' to a charity or a community amateur sports club (CASC). Trading stock refers to items that the business makes or sells.
In this case, you would be able to claim full capital allowances on the cost of any equipment that qualifies. Your company must have used the item for it to be 'qualifying' equipment, such as:
The company can also donate its trading stock to a charity or to a CASC. In this case, there is no need to include anything in the sales income for the value of the actual gift. Thus, you would get tax relief on the actual cost of the stock given away.
A VAT-registered company must account for Value Added Tax on items it gives away as charitable donations. But, you would be able to apply zero VAT to those items.
This would count even if you usually charge the standard or reduced rate. To qualify for zero VAT the company must make the donation so that the charity can 'specifically':
Part of this process also means reclaiming VAT on the cost of the trading stock donated by the limited company. Use the normal rate applied to the items if you cannot zero rate them.
Giving away (or selling) land, property, or its shares in another company, are other ways for a limited company to pay less UK Corporation Tax.
You would not be able to claim for giving or selling gifts or shares in your own company. So, make sure a chosen charity would be able to accept the gift before making the donation.
When your limited company gives land, property, or shares to charity (including a sale less than its value) it would mean:
Note: No tax is due on capital gains if you donate or sell to a CASC. But, you would not be able to deduct the value of the gift from the business profits.
The value that a gift would sell for in an open market is its 'market value' and you need to know it to work out your tax relief.
HMRC have guidance notes to help you calculate the value of a donation to charity. You can use it for workings of claimable Corporation Tax relief if you give away or sell land, property or shares to a charity.
Note: You can also get professional help from a tax adviser if you need it.
There are several responsibilities associated with this kind of donation. You must keep documentation that shows you made a gift or a sale - and that the charity accepted it. You would also need to keep these records on file and available for at least six (6) years.
Donating land or property means you would need to get a letter or a certificate from the charity, containing:
Gifting shares would mean filling in a stock transfer form. The document must show the removal of shares out of your company name and into the name of the chosen charity.
A charity can ask you to sell a gift of land, property, or shares, on their behalf. You would still be able to claim tax relief on your donation. But, you would need to keep records on file showing the gift you made and the request to sell it from the charity.
Note: If you sell land, property, or shares on behalf of a charity without records you may need to pay Corporation Tax.
Seconding employees means you would be able to deduct the costs as normal business expenses. It would apply if:
The company would still need to follow the rules on running PAYE and payroll for employers. Set the costs of their wages and any business expenses against the taxable profits as though they were working for your company.
Note: You cannot claim the costs for employees seconded or volunteering at a community amateur sports club (CASC).
Making charity sponsorship payments are not the same as making donations. As a rule, limited companies would get something related to the business operation in return.
But, you can treat them as business expenses. You would need to deduct any sponsorship payments from the business profits before pay taxes.
Sponsorship payments would qualify as a business expense providing the charity:
Note: Contact the HMRC charities helpline for more information on charity payments and how they qualify as a sponsorship payment or a donation.
There are several different ways to claim tax relief on charity donations. It would depend most on what type of donation you make.
You should enter the total value of the donations made into the 'Qualifying donations' box. You will find this on the 'Deductions and Reliefs' section of a tax return. See above for special rules on calculating the value of a donation to charity.
You can deduct costs as a normal business expense in the annual accounts and tax returns for a private limited company if you:
You can claim capital allowances on the cost of any equipment that you donate in your company annual accounts.
You cannot deduct an amount that reduces your company profits below zero. In any case, if you choose to donate more than your profit, you will not be able to:
Tax Breaks for Limited Companies Donating to Charity in the United Kingdom