Business News
Giving something back
Not many companies are aware that they can get tax relief on gifts of money to charities. However, you need to remember that the relief works differently than for individuals, self-employed sole traders and partnerships.
Gifts of money made to a charity by your business should be paid in gross, before tax is deducted, and then taken off the total profit of the company when you come to calculate Corporation Tax. The charity itself then doesn’t need to make a Gift Aid tax claim, because no tax has been paid in the first place.
Donations to your company that qualify for Tax Relief
For charitable donations to your company or a person ‘connected’ to your company to qualify for tax relief, they must fall below the following limits:
|
Amount of Donation |
Benefit Value Limit |
|
£0 - £100 |
25% of the donation |
|
£101 - £1,000 |
£25 |
|
Above £1,000 - donated up to and including 5 April 2007 |
2.5% of the donation |
|
Above £10,000 - donated up to and including 5 April 2007 |
£250 |
|
Above £1,000 - donated on or after 6 April 2007 |
5% of the donation |
|
Above £10,000 - donated on or after 6 April 2007 |
£500 |
Donations to your company that don’t qualify for Tax Relief
Gifts that come with a condition about repayment, e.g. loans.
Gifts where your company or a person 'connected' to your company has received a benefit over a certain value in return, e.g. a service.
Gifts that come with a condition or arrangement that the charity will purchase property (other than as a gift) from your company or a connected person.
For donations made before the 1st April 2006, these restrictions apply to close companies only. Any donations after then apply to everyone.
You can also claim tax relief on other gifts to charity such as land, buildings or shares and equipment, stock or staff help.
How to claim Corporation Tax Relief
When you make a qualifying donation to a charity, the amount is treated as a ‘non-trade charge’.
This means that your business can make a claim on its Company Tax Return to set the amount of the donation against its taxable profits.
You should keep normal accounting records to support any entry on your Company Tax Return, alongside any relevant documentation, for example correspondence with the charity itself, such as a certificate of donation or ‘thank you’ letter.
You should keep your tax records for at least six years after the date in question.
The time limit on claiming Corporation Tax Relief
You should claim tax relief within the accounting period for which your business makes the donation. However, there are special rules for companies that are owned by a charity.
If the donation is made to the parent charity within nine months of the end of the accounting period, the company can then choose to treat it as if it were paid in an earlier accounting period.
