Small business charitable donations: the rules and benefits
Christmas is the time for giving. It sounds like a cliche but actually many people are incredibly generous, especially this time of the year and we think that’s not to be sniffed at.
Giving to charity is a kind act and one we encourage, but there is a more troubling side to this too. Strap in, we’re about to go on a personal rant but we’ll be right back to how charitable donations can also benefit your small business straight after...
The Charity Dilemma
We often find ourselves asking the question: why is charity necessary at all? Why are families having to fund raise or go cap in hand begging for help to pay for essential equipment such as wheelchairs for their children. Shouldn’t this stuff be automatically available? Isn’t this what our Government and taxes are for? And that is the fundamental problem with charity - it exists only because there is an essential support system missing.
You may know from previous blogs that one of our children is disabled and the fight for essential services for her is relentless. But worse than that is the view others sometimes have of us. I still remember several years ago, on Children in Need day, an acquaintance said to me “Oh Emma, I was listening to Children in Need on the radio and it was about this poor little girl who had Cystic Fibrosis and it made me think of you and your little girl”. I replied, “my daughter doesn’t have Cystic Fibrosis, she has Down syndrome and I wouldn’t change her for the world”. The reply “I know, but it’s still so very sad, I feel so sorry for you”. Yuk. No pity needed here, mate, we’re perfectly happy thanks!
Families are forced to beg for basic services and essential equipment in exchange for a sad story. Children having to share their personal medical details and private or traumatic life stories in exchange for the public's pocket change. This exchange of pity for cash creates a public perception that disability is a terrible thing, which for us it certainly isn’t. It's just a very normal part of our very lovely - and just as nuts as the next family - life.
We follow a fabulous disability campaigner who can probably summarize our national fetish with charitable sob stories much better in this video than I can, if you are interested. I hope you are interested.
However, the reality is, so many essential services would not be available under the current system without charity, so please do donate to charities that are meaningful to you. Donate with kindness, not pity and without expecting something in return, such as an evening's entertainment watching the “poor little children”. Perhaps choose a local charity rather than a large well known one that will already receive lots of funds and commit to supporting it regularly and long term to help them become a sustainable resource for those they help.
And now for the tax advice bit - because we may be lefties but we are still accountants and while we believe in a robust taxation system we also believe small businesses need all the help they can get right now...
Can I make charitable donations through my business?
Yes you can. Christmas is when many businesses focus their attention on good causes that are personal to them or their staff and customers and it is perfectly ok to donate via your company. What is perhaps quite unknown, is that there are many different ways to donate to charity. We’ll explain more on that later.
The benefits of charitable donations
There are many benefits to charitable donations and whilst we encourage you to give to charity in order to benefit charity, we want it to benefit you too!
Reduce tax liability
There are several ways that charitable donations will reduce your tax liability. Either through reduced corporation tax, income tax, capital gains tax or reclaimed VAT. We cover it in detail below, but every penny counts, right?
Create positive publicity
Doing good is good for business. It’s ok to let people know you are doing a nice thing. It’s great to share this on your social media channels and in local papers. You are a business and what brings you positive publicity is good for your business. When your business does well then you employ people, pay taxes and buy other goods and services from other businesses. So go out there and toot your horn!
Not only are there tax benefits for businesses on doing so, but there are also ‘soft benefits’ too, such as teams pulling together for a shared cause. That’s quite motivating and something to be proud of which is great for company morale and productivity.
If donating stock, such as unused food, or out of season clothes (these are the best examples we could think of!), then the opportunity to reduce waste and increase the usefulness of the products is a massive benefit. Both to the recipients and the environment.
Gain experience & contacts
Donating people - or time/pro-bono services is a fantastic way to get additional experience, acquire some new skills for you or your team and network with new people.
Let’s not dismiss the unbelievable life-changing effects of charitable donations on the lives of recipients. That in itself is a huge benefit - it feels really nice to do something really nice for someone else.
Are charitable donations tax deductible?
Yes. Corporation tax, VAT, income tax and capital gains tax bills can all be reduced through charitable donations.
The details of each however are fairly complex and it will depend on your business (Limited Company or Sole Trade or Partnership) and how and what you donate (cash, shares, land, stock, people). We’ll go into more details later in this article.
Are there different rules for Limited Companies and Sole Traders?
Yes. The rules on charity giving differ if you are a Limited Company or a Sole Trader. Let’s dig into that in more detail.
Donating to charity as a Limited Company
Let’s clarify some of the different ways to donate and what the tax benefits are for your business.
Your company will pay less corporation tax if it gives these items to a charity, with certain conditions. Additional tax benefits are listed under each item.
This cannot be a loan or distributed profit (dividends) or made with the condition that the charity purchase property from your company or anyone connected to it
If you are given something in return, it must be within certain limits:
Donation amount Maximum £ of benefit
Up to £100 25% of donation
£101 - £1,000 £25
£1,001 + 5% of the donation up to
This includes benefits given to any person or company connected with your company including close relatives.
Equipment & stock
You can claim full capital allowances on equipment you donate provided the equipment has been used by your company. This can include:
vans & cars
tools & machinery
If you donate stock, you don’t have to include any sales income in your accounts which means you get full tax relief on the stock you are giving away.
If your company is VAT registered you will need to account for VAT on the items you donate. However you can apply zero VAT rate to the items you donate (even if you normally charge VAT) if your company specifically makes the donation for the charity to sell, hire out or export the items. Therefore you reclaim the VAT costs on the stock you are donating.
Land, property and shares
You can give or sell property or shares in another company (but not shares from your own company).
You won't have to pay capital gains tax and you can deduct the value of the gifts from your profits before you pay tax.
People (on secondment)
Your company can temporarily provide an employee to work for a charity (while still paying them) and the cost of that employee will continue to be tax deductible as if they were still working for you.
You can deduct the cost of sponsoring a charity as a business expense if the charity:
publicly supports your services or products
allows you to use their logo on your own printed material
allows you to sell goods at their events or premises
links from their website to yours
Donating to charity as a Sole Trader
Donations as a sole trader or partnership are treated as personal donations and you can do this is several ways:
This means that charities can claim an additional 25p for every £1 you donate, costing you nothing extra. The charity you are donating to will normally provide you with a form to fill in to claim the gift aid.
Your donations will qualify as long as they are not more than 4 times what you have paid in tax that year. If you have stopped paying enough tax, you must tell the charity.
If you are a higher rate taxpayer you can claim the difference between the rate you pay and basic rate on your donation.
If you submit a self assessment tax return this can be done through this (remember to give your accountant the details). Otherwise you can call HMRC and ask them to amend your tax code.
Land, property or shares
You can get income tax relief and capital gains tax relief on donations of land, property and shares.
You can pay less tax by deducting the value of the donation from your total taxable income. You can do this via a self assessment tax return or by writing to HMRC.
Through your will
Your donation, stated in your will can either
be deducted from your estate before inheritance tax is calculated
reduce your inheritance tax if 10% or more of your estate is left to charities
You can donate a fixed amount, an item or what’s left after other gifts are given out.
Need some inspiration?
Here are some of our favourite charities, that we like to support:
Samuel Peyps school is a school for children with special needs. The charity, Friends of Samuel Pepys school raises funds and supports the school.
Eddies supports people with learning disabilities in the Cambridgeshire area.
The Hive is a new group to support children with additional needs and their families setup and run by St Mary’s in Eaton Socon, St Neots.
If you are confused or need some advice about making charitable donations, please get in touch.
☎️TEL: 01480 775 611