How to be kind and cut your corporation tax bill at the same time!
Cutting your corporation tax bill by giving to charity
Christmas is traditionally a time when our thoughts turn to people less fortunate than ourselves. Throughout the festive season, charities have worked hard to encourage us to give to causes ranging from homelessness and food banks to mental illness and child protection.
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:-
- Stocks which you probably aren’t going to sell any time soon
- Equipment you no longer need
- Your employee’s time – if you have any slack periods they could be used to help a charity
We run through each of these below and show you howto 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.
- 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.
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.
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 cold 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 Wanstead, Cheam, Saffron Walden, Chelmsford, and London City.