Cut Corporation tax by giving to charity

Charities are always working hard to encourage us to give to causes ranging from homelessness and food banks to mental illness and child protection. Businesses can help and also cut Corporation Tax at the same time.

Few of us are able to give as much to charity as we would like. However, if you are the owner or a senior director of a limited company, it’s possible to cut your corporation tax bill by giving to charity. It’s a win-win situation because not only do the charities of your choice get much-needed funds but your generosity also reflects well on your company’s reputation. This can even attract additional business.

So how do you cut your bills via charitable donations?

In a nutshell, it depends on what you are giving away.

Here are some of the things that you, as a business, could give away to charity:-

  • Money
  • Stocks which you probably aren’t going to sell any time soon
  • Equipment you no longer need
  • Shares
  • Your employee’s time – if you have any slack periods they could be used to help a charity
  • Sponsorship

We run through each of these below and show you how to cut your tax bill in this way.

Giving money to charity

If you give money to charity or a community amateur sports club (CASC), you can deduct the value of the donations from your total profits before you pay tax.

That said, there are three types of payments that you can’t deduct.

These are:

  • Loans, which must then be repaid by the charity
  • Money given on the condition that the charity will buy property from your company or any person connected with it
  • Dividends, or any other distribution of company profits

Also, if you receive any benefits in return for your donations (say tickets to a sporting event), then they must be below a certain value. If you give up to £100, the value can’t be more than 25% of the donation. If the donation is between £101 and £1,000, the upper limit is £25. And if you give more than £1,001 you can only receive benefits worth up to 5% of the donation (up to a maximum of £2,500).

That said, you’re not going to be giving simply to receive a benefit. Just be careful – you don’t want to accidentally fall foul of the taxman by accepting hospitality or benefits as you build up a relationship with your chosen charity or charities.

Cut Corporation Tax by giving equipment or trading stock

If you give equipment like computers, vehicles, tools, office furniture, and the like, you can claim full capital allowances on the cost of it. If you donate trading stock, you don’t have to make any adjustment in your accounts for the value of the gift, meaning you effectively get tax relief on it.

A word of warning though – if your company is VAT registered, you need to account for VAT on the items you give.

There are exceptions, though. If you donate items specifically so the charity can sell, hire, or export them then you can reclaim the VAT on the cost of what you donate.

Giving land, property and shares

If you give land, property or shares in another company, you could pay less Corporation Tax (but you can’t claim for gifts of shares in your own firm). Also, when you give these things to charity (or sell them for less than they are worth) you won’t have to pay tax on capital gains and you can deduct the value of your gift from your business profits before you pay tax.

One important note – before you give these items to charity, talk to the recipient first to make sure it is allowed to accept your gift.

Cut Corporation Tax by seconding employees to a charity

If your employees temporarily work for a charity on your time, you can still set costs like wages and business expenses against your taxable profits – just as though they were still working for you. Please remember, though, that you can’t claim these costs if your employees are on secondment or volunteering for a community amateur sports club (CASC).

Sponsoring a charity

Sponsorship payments differ from donations because your company gets something related to your business in return. This can include the charity publicly supporting your services or products, allowing you to use their logo in your printed material, letting you sell your goods or services at their premises or events or linking from their website to yours.

Talk to your chosen charity or contact the HMRC Charities Helpline on 0300 123 1073 to check whether your payment counts as sponsorship. If it does, you can deduct it from your business profit before tax by treating them as business expenses.

Is it worth giving to charity?

Whether your business gives to charity is ultimately up to you. But if you do, it can raise your profile, win you additional business and allow you to invest money in good causes rather than putting it directly in the taxman’s pocket. For us, that’s certainly enough to put a smile on our faces in these dull winter months.

If you’d like to learn more about corporate giving to charity, do talk to us today. Here at THP, we’d be very happy to advise you! Contact our offices in WansteadCheamSaffron Walden and Chelmsford.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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About Mark Ingle

Owner-manager business specialist, Mark Ingle is key to building relationships with clients at the Chelmsford office. “I like to see clients enterprises grow and succeed.” Mark explains, “The team here has a lot to offer and I can see a lot of new businesses responding to that.”

Having worked for accountancy practices in London and Essex, Mark has worked with a range of companies varying in size. For Mark, THP stands out for its “local firm approach with the resources of a larger practice.”

Although a keen traveller, Mark is focused on giving his clients at THP the highest service, “Right now, I aim to help the clients we have to the best of my ability which will help me attract more of the right clients in the future.”

Mark’s specialist skills:

  • Annual and Management Accounts
  • Tax and VAT
  • Strategy and Business Planning
  • Marketing and Sales
  • Business Development
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