TLC Loves… tax relief on giving to charity

We all like to think we can help those less fortunate than ourselves. So whether your charity of choice is medical like Cancer Research UK, all about animals like the RSPCA or another one close to your heart, here are some things to think about when making donations.

How to make the most of charitable donations 

If you run a limited company you have a choice to make when making charitable donations – give them personally or from the company.

Broadly speaking, if you pay higher rate income tax it will be better for you to make the donations personally. But here’s a quick run-down of the situation and your options.

If you’re a sole trader your only option is to make the donations personally, so make sure you keep an accurate record and we will show them on your self assessment tax return.

Tax relief on a personal donation is shown on your self-assessment paperwork (that’s why we ask you what charitable donations you’ve made).

Even if you didn’t pay tax personally last year, from 2017-18 most directors will pay some tax in the form of dividend tax, so you can tick the Gift Aid box on any donation and the charity will receive an extra amount from the Government on top of your donation.

The tax situation if you run a limited company

You have a choice as a company Director to either pay personally or direct from your Limited company. If you are basic rate taxpayer broadly speaking it’s easier to pay Charitable donations direct from your company. If paid by the company – the donation is made as deductions from your turnover before profit in the company accounts, effectively reducing the tax you will pay. Donations to charity are therefore offset against your company’s Corporation Tax liability.

You can also tick the Gift Aid box if making the donation from a limited company – but your company is the one adding the additional amount from HMRC. As a company you pay donations gross (as you get the tax relief).

What you can donate

You don’t only have to donate cold hard cash. There are many other things considered charitable donations if given from a limited company. These include:

– staff
– land, shares or property
– equipment or trading stock (if you sell products)

Notes of caution

As altruistic as it is, there are a couple of things to beware of when thinking about making charitable donations.

You cannot use a charitable donation to create or increase a loss for a limited company. This situation will generally occur in connection with large donations, so do speak to us for advice if you’re considering making one.

Also, you will be liable to reimburse HMRC the tax the charity reclaims from HMRC on your donation if you don’t pay enough tax personally to cover the Gift Aid (although this doesn’t happen if you pay from the company).

As always, if you would like to make a charitable donation and you’re not clear about the best way to do that or what rules will apply, do give one of the team a call.

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