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In the past, donations to charity were not seen as a valid business expense by a Limited Company and, as a result, were not allowable for tax relief.
In recent times, to encourage an altruistic spirit, the rules have been liberalised. As a result, a Limited Company now pays less Corporation Tax when it gives the following to charity:
In most instances, when the company donates money to a charity the value of these donations can be deducted from the total business profits before tax.
However, the company cannot be deduct donations that are:
If the charity gives the company or anyone connected a gift in return – maybe tickets to an event or a bottle of wine – the following limits apply:
| For donations up to £100 | – | 25% of the donation |
| For donations between £101 and £1,000 | – | £25 |
| For donations over £1,000 | – | 5% of the donation (maximum £2,500) |
If the company donates your or the staff’s time to a charity, this is treated as a secondment.
The company would continue to pay the employee and run Pay As You Earn (PAYE) on their salary as normal. Their overall costs, including any expenses incurred on the secondment, would be deemed as business expenditure as though they were still working for the company.
The company can award sponsorship to a charity that is considered as a business expenses so long as the charity:
Equipment given to charity must have been used by the company to recover the full capital allowances on the cost of equipment. Typically, equipment falls into one of the following categories:
If the company gives trading stock to a charity, this is treated as a zero-value sale. The full purchase price or manufacturing cost of the stock is included as a business expense in the normal manner.
For VAT-registered companies, VAT needs to be accounted for on the donated items. However, you are entitled to apply zero VAT if the donation is specifically for the charity to:
The company is able to reclaim the VAT on the cost of the donated trading stock.
Should the company decide to give or sell land and property to charity it is vital to firstly ensure that the charity can accept the gift.
If so, the company would not pay tax on any capital gain and would be entitled to deduct the market value of the gift from the business profits before tax.
There is more work and documentation required for a gift of land or property. The market value at the time of the gift needs to be demonstrable and the charity needs to provide a statement that they have accepted the gift that includes:
A company cannot donate its own shares but, if it owns shares in another company, these can be donated by completing a stock transfer form to move the shares into the charity’s name.
Although the methodology varies for each of these types of donation within the Limited Company’s accounts, ultimately these all have the impact of reducing the Corporation Tax for the period.
If you have any questions or would like further guidance, please email us at welcome@cooperfaure.co.uk.
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