Giving away certain assets to charity means a limited company would pay less Corporation Tax. The assets that qualify include:
- Equipment or trading stock (items the company makes or sells)
- Money, land or property
- Payments for sponsorship
- Secondment (the temporary transfer of an employee)
- Shares in another company (not those in your own company)
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.
Donating Money to 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.
Monetary Payments that Do Not Qualify
There are some kinds of charitable money payments that do not qualify for tax breaks, such as:
- Loans that the charity would need to repay.
- Money that is a distribution of company profits (e.g. share dividends).
- Payments made with a condition that the charity will buy property from the company (or anyone connected with it).
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).
- Donation up to £100: The maximum value of the benefit cannot be over 25% of the donation.
- Donation between £101 – £1,000: The maximum value of the benefit cannot be over £25.
- Donation of £1,001 and over: The maximum value of the benefit cannot be over 5% of the donation (up to a maximum of £2,500).
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).
Equipment and Items of Trading Stock
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.
Giving Equipment to Charity
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:
- Cars and vans
- Computers and printers
- Machinery and tools
- Office furniture
Giving Trading Stock to Charity
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.
VAT-registered Limited Companies
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’:
- Export the items
- Hire out the items
- Sell the items
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.
Donating Land, Property, and Shares
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:
- There would be no liability for Corporation Tax when you sell business assets such as these.
- You would be able to deduct the ‘market value’ of the gift from the business profits before you pay tax.
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.
Working Out the Market Value
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.
Land or Property
Donating land or property means you would need to get a letter or a certificate from the charity, containing:
- A description of the donated (or sold) land or property.
- The ‘disposal date’ (the date that the gift or the sale took place).
- A statement that confirms the charity now owns the land or the property.
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.
Selling Land, Property, or Shares for a 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.
Employees Seconded to Charities
Seconding employees means you would be able to deduct the costs as normal business expenses. It would apply if:
- It is a ‘secondment’ (a temporary transfer of an employee to work for a charity).
- An employee carries out volunteer work for a charity during their normal working time.
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).
Sponsoring a Charity
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:
- Publicly supports the products or services of your company.
- Allows your company to use the charity logo in your own printed material.
- Allows you to sell your goods or your services at their events or on their premises.
- Creates a link from their website to your company website.
Note: Contact the HMRC charities helpline for more information on charity payments and how they qualify as a sponsorship payment or a donation.
Claiming Tax Relief on Charity Donations
There are several different ways to claim tax relief on charity donations. It would depend most on what type of donation you make.
Deducting from Company Profits
- You donated money
- You gave or sold land, property, or shares
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.
Donating more than Company Profit
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:
- Declare a trading loss on your limited company tax return.
- Carry over any remaining amount to your next company tax return.
Deducting as Business Expenses
You can deduct costs as a normal business expense in the annual accounts and tax returns for a private limited company if you:
- Seconded employees
- Sponsored a charity
Claiming Capital Allowances
You can claim capital allowances on the cost of any equipment that you donate in your company annual accounts.