Whether you want to make regular donations to a charity close to your heart or there’s a local event requiring a one-off sponsorship, you can make charitable donations through your limited company.
But did you know that alongside your generosity, you could benefit from increased tax efficiency if you choose to donate to charity through your limited company? To tell you how, we’ve created this handy guide.
How can I donate through my limited company?
If you choose to give money through your limited company, there are a number ways you can go about it – including:
- Equipment or trading stock (items your company makes or sells)
- Making a gift of certain shares or land
- Sponsorship payments
The third option is pretty complex to navigate and rarely used. If you decide you want to be that generous, it might be worth speaking to an expert to make sure everything’s done correctly.
What will I get in return?
Aside from the warm and fuzzy feeling you’ll get from doing a good deed, you’ll also get tax relief by deducting the value of your donations from your total business profits before you pay tax.
Accounting for charitable donations
If your company gives money to a charity or community amateur sports club, you can pay less Corporation Tax by deducting the value of your donation from your total pre-tax profits.
You won’t receive tax relief on payments that:
- Are loans that will be repaid by the charity
- Are made on the condition that the charity will buy property from your company or anyone connected with it
- Are a distribution of company profits (e.g. dividends)
In addition, any benefit you receive in return for your donation (for example tickets to an event) must be below a certain amount to qualify for tax relief. They are:
|Donation amount||Maximum value of benefit|
|Up to £100||25% of the donation|
|£101 - £1,000||£25|
|£1,001 and over||5% of the donation (up to a maximum of £2,500)|
This applies to benefits received by anybody who is connected to your company, including close relatives.
You can claim tax relief for donating money via your company’s tax return that covers the accounting period when the donation was made.
Donating equipment and trading stock
Just like donating money, your business will pay less Corporation Tax if you give away equipment and trading stock. This is done differently, depending on the type of gift you make:
If you purchase equipment and then donate it to charity, you’ll receive corporate tax relief since the cost will be classed as a charitable donation. This applies to:
- Office furniture
- Computers and printers
- Vans and cars
- Tools and machinery
2. Trading stock
If you decide to donate trading stock to a charity, you won’t have to include anything in your sales income for the value of the gift. This means you’ll get tax relief on the cost of the stock you’ve given away.
Don’t forget, if your company’s VAT registered, you’ll need to account for VAT on what you give away. However, you can apply zero VAT on the items if you make the donation specifically so the charity can:
- Sell the items
- Hire out the items
- Export the items
This means you can claim back the VAT on the cost of the stock you donate.
Sponsoring a charity
These are different from charitable donations because you will usually get something back in return. Instead of claiming tax relief from sponsorship, you can deduct them from your company’s pre-tax profits by treating them as a business expense.
Payments will qualify as a business expense if the charity:
- Publicly supports your products or services
- Allows you to use their logo on your own printed material
- Lets you sell your goods or services at their event or premises
- Links from their website to yours
Need extra help?
We hope this guide has helped shed some light on making charitable donations through your limited company. If you want a bit more advice, we’re here to help.
At ClearSky Contractor Accounting, we’re committed to helping our clients get the most out of their money. That’s why we offer comprehensive tax advice as standard.
We understand that contractors have a busy WorkStyle, so we make sure we’re on hand at a time to suit you, not the other way around. With us, you can manage your account any time day or night through our online portal, while our dedicated team of experts is available to help you with any queries you may have.