Tax Relief When Your Company Gives to Charity

When your limited company donates to charity, it can reduce the amount of Corporation Tax it pays. This applies to cash donations, gifts of equipment or stock, and donations of land, property or shares. Understanding how these reliefs work can help you support good causes while managing your company's tax position efficiently.

Donating money

Your company can deduct cash donations to charities or community amateur sports clubs (CASCs) from your total business profits before calculating Corporation Tax.

You claim the relief by entering the total value of your donations in the 'Qualifying donations' box in the 'Deductions and Reliefs' section of your Company Tax Return, for the accounting period when you made the donation.

Payments that don't qualify

You cannot claim relief for:

• Loans that the charity will repay
• Payments made on the condition that the charity buys property from your company or anyone connected with it
• Distributions of company profits, such as dividends

If you receive something in return

You can still claim relief if you receive a benefit in return for your donation, provided the benefit stays below certain limits:

| Donation amount | Maximum value of benefit |

|-----------------|--------------------------|

| Up to £100 | 25% of the donation |

| £101 - £1,000 | £25 |

| £1,001 and over | 5% of the donation (up to a maximum of £2,500) |

These limits also apply to benefits given to anyone connected with your company, including close relatives.

If you receive a benefit related to your business, your payment qualifies as sponsorship rather than a donation (see below).

Giving equipment or trading stock

Equipment

Your company can claim full capital allowances on the cost of equipment donated to a charity or CASC. Capital allowances are a form of tax relief that allows you to deduct the cost of business assets from your profits.

The equipment must have been used by your company. This includes items such as:

• Office furniture
• Computers and printers
• Vans and cars
• Tools and machinery

Trading stock

If your company donates items it makes or sells, you don't need to include anything in your sales income for the value of the gift. This effectively gives you tax relief on the cost of the stock you've given away.

#### VAT considerations

If your company is VAT-registered, you normally need to account for VAT on items you give away.

However, you can apply zero VAT to the items—even if you usually charge standard or reduced rate—if your company makes the donation specifically so the charity can:

• Sell the items
• Hire out the items
• Export the items

When you zero rate donated items, you can reclaim the VAT on the cost of the trading stock you donate.

If you cannot apply the zero rate, use the VAT rate you normally charge for those items.

Donating land, property or shares

Your company can receive Corporation Tax relief when it gives or sells land, property, or shares in another company to charity. Note that shares in your own company do not qualify.

Before making the donation, contact your chosen charity to confirm it can accept your gift.

Tax relief available

When you donate land, property or shares to a charity (including selling them for less than their market value):

• You won't pay tax on capital gains
• You can deduct the market value of the gift from your business profits before paying Corporation Tax

If you donate or sell to a CASC, you don't pay tax on capital gains, but you cannot deduct the value from your business profits.

Working out the market value

You need to know what the gift would sell for on the open market (its 'market value') to calculate your tax relief. You can get professional help with this valuation.

Records you must keep

You must keep documents relating to the donation for at least 6 years to show that you've made the gift and that the charity has accepted it.

For land or property, you must obtain a letter or certificate from the charity containing:

• A description of the land or property
• The date of the gift or sale
• A statement confirming that the charity now owns the land or property

For shares, you must complete a stock transfer form to transfer the shares from your company's name to the charity's name.

Selling on behalf of a charity

The charity may ask you to sell the land, property or shares on its behalf. You can do this and still claim tax relief for the donation, but you must keep records of both the gift and the charity's request. Without these records, you might have to pay Corporation Tax on the sale.

Seconding employees

If your company temporarily transfers an employee to work for a charity (known as a 'secondment'), or allows an employee to volunteer for a charity in work time, you can deduct the costs as normal business expenses.

Your company must continue to pay the employee and run Pay As You Earn (PAYE) on their salary. You can set all the costs—including wages and business expenses—against your taxable profits as if the employee were still working for you.

You cannot claim these costs for employees seconded to or volunteering at a CASC.

Sponsorship payments

Sponsorship payments differ from donations because your company receives something business-related in return. You can deduct sponsorship payments from your business profits by treating them as business expenses.

What qualifies

Payments qualify as business expenses if the charity:

• Publicly supports your products or services
• Allows you to use their logo in your printed material
• Allows you to sell your goods or services at their event or premises
• Links from their website to yours

If you're unsure whether a payment qualifies as sponsorship or a donation, contact the HMRC charities helpline.

How to claim

For cash donations and gifts or sales of land, property or shares, claim relief in your Company Tax Return that covers the accounting period when you made the donation or sale.

Enter the total value of your donations in the 'Qualifying donations' box in the 'Deductions and Reliefs' section of your tax return.

For equipment, trading stock, employee secondments and sponsorship payments, the relief is given automatically through capital allowances or as business expenses in your normal accounting.

Sources

• Tax when your limited company gives to charity
• Tax relief on gifts of land, buildings or shares

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.