As we have found at CRM, charitable giving has many benefits to both the company and the charity. There is a growing trend for businesses to embrace social causes and support their employees’ charitable activities. Charities are always keen to make strong relationships with businesses for funding and also practical support through skills sharing and volunteering. For the company, donating to charity creates good staff engagement, builds a caring, responsible brand and increases business opportunities too.
Our CRM Charity sector specialist Roger Allum takes us through some of the basics:
Are there tax benefits on charity donations?
The simple answer is yes, but as with all tax matters, it depends on the circumstances, mainly the type of donation and whether you are a limited company, partnership or sole trader.
Limited companies can save on corporation tax when they donate to a charity or community amateur sports club (CASC). The donation doesn’t have to be money but there are different rules to cover different types of donation. A limited company can deduct money donated to charity from their taxable profit which reduces the corporation tax for the business.
The donation can’t be a loan or a distribution of profits like a dividend or have any other conditions attached. If the company receives anything in return, the value must be only 25% of the donation up to £100, £25 for donations over £100 and if it’s over £1000, anything received in return can’t be worth more than 5% of the donation.
With Corporate Gift Aid, companies are entitled to tax relief for qualifying charitable donations as they are paid gross with no income tax deducted. The amount of the deduction is limited to the amount that reduces the company’s total taxable profits to nil and cannot create or augment a company’s loss for tax purposes. Charities do not reclaim tax from HMRC in respect of company donations.
Companies can also donate equipment, products it sells, land, property, shares or seconded employees – each has separate rules depending on whether the payments are counted as business expenses or included on the corporation tax return.
For sole traders and partnerships, your charity donations are considered as personal even though you may pay from a business account so there are no specific business tax benefits. However, the charity or CASC can save on tax via Gift Aid.
Payroll giving to charities (not CASCs) is available for all sizes of business. Donations are taken out of the employee’s salary before tax.
When tax-paying individuals donate to charity and are able to tick the Gift Aid box, the receiving charity can claim 25p tax relief for every £1 of the donation. The Gift Aid payments should be recorded in your self-assessment personal tax return.
As a higher rate taxpayer, you can claim the difference between the basic rate and your tax rate on what you donate. This applies to the current and previous tax year. All claims must be recorded on your tax return with backup documentation.
What are the tax benefits for charities?
As well as the Gift Aid that charities can claim back on their donations they can also take advantage of the Gift Aid Small Donations Scheme (GASDS). This allows them to claim Gift Aid on smaller donations such as street collections in buckets and tins without the need for a signed Gift Aid form.
Charities and CASCs can claim 25% of an eligible donation up to a total of £2000 but the claim can’t be more than 10 times the Gift Aid claim. To be eligible for GASDS, a donation must be £30 or less (after April 2019), be made by an individual with a UK bank account and must be used for charitable purposes.
Involving our employees in nominating a charity of the year has been a great move for CRM. Our staff and customers get involved in lots of fundraising events every year and we love giving back to our local community.
If you need help to decipher the benefits and pitfalls of charitable giving as a business or an individual, contact Roger Allum, the CRM charity sector specialist at CRM on 01865 379272.