Using your limited company to make tax efficient charitable donations

It is wonderful to give to charities that support causes you care about. What you might not realise is that there are substantial tax benefits to making these gifts through your limited company. This article will discuss the tax advantages of making charitable contributions through a limited company.

The short version

In order to receive a tax deduction for your generosity, your gifts must:

• Donate to organisations that are recognised by HMRC as legitimate charities in the UK.
• Be transparent and honest. Donations should not be a dividend or a reward for shareholders, and the charity cannot be required to buy from you first.
• Be clearly traceable. Donation receipts are important for corporate tax purposes and should be kept for seven years.

Methods of giving

Standard monetary gifts are tax deductible for your limited company.

The maximum allowable deduction is the sum that leaves you with no net income. If your trading losses for the year total more than this amount, you cannot deduct them or carry them forward to next year’s tax return.

Donations of equipment previously used in the business such as office furniture, computers, printers, machines, and cars are eligible for a full capital allowances.

Donations of trading stock include anything your company produces or sells. You can claim tax relief based on the cost of the stock donated.

It is advisable to check with the charity to be sure they can utilise and accept your donations before making them, especially if the contributions in question are non-monetary in nature.

You can claim tax deductions by keeping records of the gift date, a transfer-of-ownership declaration from your firm to the charity, and a detailed explanation of the donation – so remember to keep your records meticulously.

Through a process known as “secondment,” a limited liability company can allow staff to temporarily work for a nonprofit organisation during business hours. Wages must be paid during this time, but can be deducted from the company’s taxable income.

Benefiting from charitable giving

A charity may seek to provide perks in exchange for your financial support. As long as the total amount of these advantages is within the allowed range, they will not reduce your Corporation Tax relief.

Donations of up to £100 can recoup benefits of up-to 25%. Benefits are also capped at £25 for gifts between £101 and £1000. For gifts of £1001 or more, perks can be worth up to 5% of the gift, with a maximum value of £2,500.

These rules apply to everyone associated with the limited company, including employees and family members. Donating to a charity that provides advantages to the firm is considered a sponsorship payment and is governed by separate rules. Sponsoring family members or friends might raise red flags with HMRC.

JW Hinks are supporting Let’s Feed Brum this year as our charity partner. A Birmingham based charity that works to provide meals for the homeless and vulnerable. Every day, the charity partners with a different local restaurant who prepares up to 80 meals, these are then distributed by Let’s Feed Brum to people in need.

If you would like to discuss making charitable donations from your limited company in more depth, call JW Hinks on 0121 456 0190. We have helped many businesses partner with charities to further causes they believe in while reaping tax benefits in the process.