Companies making donations
Q: I am a director of a small limited company and want to make a donation to a local charity. Can you advise me on the implications?
A: Assuming that the organisation is a registered charity, your company will get corporation tax relief on the donation. To get the tax relief, the company simply makes the payment to the charity and deducts the amount as a ‘non-trading charge’ when working out its profit for corporation tax purposes. Charitable donations cannot be used to create or increase your company’s trading losses, and they cannot be carried over from year-to-year. So if you make a donation of more than your taxable profit, the excess is not tax deductible. Please note, if the company receives any benefit from the charity as a result of the donation, such as an advertisement in its newsletter, there are restrictions of the value of the benefit, in order that the donation still qualifies for relief. Furthermore, there are different rules if you were to gift anything other than cash, such as land or equipment.
Donations to charity
Q: I am a sole trader, and my business had an unexpected rise in profits in the year to March. Accordingly I recently made a big donation to a charity. I have heard you can get tax relief on donations- could you tell me a bit more please?
A: You may be able to get some tax relief for the donation. To do this, firstly make sure that you have signed a Gift Aid declaration from the charity, and that you have completed all of the necessary details on this form. Next, make sure you will pay enough tax to cover the tax the charity will be claiming. To check this, divide your donation by four, and make sure it is less than your tax bill for the tax year the donation is made. Because you have made this donation after your ‘bumper’ tax year, the donation should be claimed on next year’s return. However, you can carry the donation back; provided you paid enough tax in that year. As a rough guide, the tax relief you will obtain will be 25% of the donation if you are a higher rate tax payer and 3/8 if you are an additional rate tax payer. The charity itself will also get an additional amount related to your basic rate tax.
Mature donor
Q: My wife has recently been looked after by a local hospice during her Cancer treatment. Now she’s out and on the mend, I’d like to make a donation to the hospice to say thank you for looking after her. I am over 65 but still run my own sole trade. Can you tell me the tax implications please?
A: You may be able to get some tax relief for the donation. To do this, firstly make sure that you have signed a Gift Aid declaration from Cancer Research, and that you have completed all of the necessary details on this form. Next, make sure you will pay enough tax to cover the tax the charity will be claiming. To check this, divide your donation by four, and make sure it is less than your tax bill for the tax year the donation is made. As you normally complete a tax return, you can tell HMRC about your Gift Aid donation by completing the section on Gift Aid payments. Because you are over 65, you will be receiving the larger, age-related Personal Allowance. To calculate the value of your Personal Allowance, HMRC will subtract the amount you donate plus the basic rate tax (that is, the ‘grossed’ up donation) from your total income and use the reduced figure. This may have the effect of increasing your Allowance if your income was above the relevant ‘income limit’ that applies, and therefore, more of your income could be tax-free!
If you require further information on charity giving please contact us.
