In the UK, individuals and companies can get tax relief when they donate to charity.
There are different rules for individuals and for limited companies, which can make things confusing for small businesses. So in this post we’ll explore what makes charity donations tax deductible for limited companies, sole traders, contractors, freelancers, and partnerships.
Please note – a lot of the tax benefits we’ll discuss in this post also apply to donations you make to community amateur sport clubs (CASCs). If you regularly donate to a sport club, and you want to know if you can get any tax relief, check if the club’s registered as a CASC.
Are Donations Tax Deductible for Limited Companies?
Limited companies can pay less corporation tax if they donate money to charity. But they can also get tax relief if they donate other items of value.
- Equipment or trading stock – so long as it’s equipment the company itself makes.
- Land, property, or shares – so long as that’s shared in another company, rather than your own.
- Employees – on secondment, for example.
- Sponsorship payments.
How to Claim Tax Relief for Charitable Donations?
In each case, you can claim tax relief by deducting the total value of your donations from your total business profits. However, to qualify for tax relief, these donations must meet certain criteria.
If you’re donating money, for example, then you cannot get tax relief if your donation is a loan that you expect the charity to repay. Nor can you get relief from any money you donate from distributing your company profits, such as your dividends.
Sometimes, charities give companies products or services in exchange for their donations. This will affect the amount you can deduct from your tax bill. For example, if you donate over £1,000 and receive something in return for your donation, you can only claim back 5% of your donation up to a maximum value of £2,500.
You can read the full guide to tax deductible charity donations for limited companies on the HMRC website.
Are Tax Donations Deductible For Sole Traders, Contractors and Freelancers?
In the UK, any donations an individual makes to charity are tax free. The tax goes to either you or the charity, depending on how you donate.
If you want to deduct donations from your taxable income, you need to keep detailed records of all of the donations you make.
The amount you can claim depends on how you make your donation:
- Gift Aid – This allows charities to claim an extra 25p for every £1 you donate. But if you pay tax above the basic rate, you can claim the difference between the rate you pay, and the basic rate on your donation.
- Donating straight from your payroll or pension – In a Payroll Giving scheme, your tax relief will depend on which tax rate you pay. The rules differ slightly in England and Scotland. But to get a vague idea of how much relief you’ll get, it’s 20p per £1 donation on the basic tax rate, or 40p per £1 donation on the higher rate.
- Donating land, property or shares – You do not pay tax on any land, property or shares you donate to a charity, even if you sell them for less than their market value. In this way, you can get tax relief on both your Income Tax and your Capital Gains Tax.
You can read the full guide to tax deductible charity donations for partnerships, sole traders, contractors and freelancers on the government’s website.
Additional Support For Small Businesses
Whether you’re running a small partnership or limited company, or you’re an independent sole trader, contractor, or freelancer, you’ll find many helpful resources for running a successful small business on our website:
- How to make a cashflow forecast for a small business.
- 5 things all small businesses need to succeed.
- When does HMRC investigate small businesses?
- How to protect your small business from cyber threats.
- The advantages of private healthcare insurance for small businesses.
- Why public liability insurance is essential for small businesses.
- What other types of insurance do small businesses need?
At Tapoly, we offer insurance company for as little as £11 a month, and we’ll tailor your policy to suit your exact business needs. Head here for more information, and to get a free quote.
If you have any questions, or you’d like to discuss your options, contact the Tapoly team on email@example.com. You can also call our helpline on +44(0)2078 460 108, or you can try our chat on our website.