Whether it’s centred on a cause that you’re passionate about, or whether it’s a slightly more strategic approach to corporate social responsibility, it makes sense to optimise your company’s charitable donations.
Charitable giving can, obviously, boost causes and initiatives that you care about, but there’s other benefits. Employees often appreciate working for a company committed to social responsibility, fostering a more positive and engaged workforce. You’re likely to get positive publicity from charitable endeavours that can attract new customers and strengthen brand loyalty among existing ones, and you can improve your company’s standing in the community and open doors to valuable partnerships.
It’s all win-win, but it also makes sense to leverage tax relief to significantly reduce your corporate tax burden while supporting worthy causes – allowing you to either give or keep more.
This is how it works:
When your company donates to a registered charity, the government rewards your generosity by allowing you to deduct the donation amount from your taxable profits. This translates to a lower corporate tax bill, essentially giving your company more resources to invest in its core operations or future endeavours.
Here are the types of donations that qualify for tax relief:
- Cash Contributions: The most common form, the full value of the cash donation is deductible.
- Gifts in Kind: Donating equipment, inventory, land, property, or even employee time on secondment qualifies for relief. The value of the donation is based on the market value of the item or service provided.
- Shares: Donating shares in another company (excluding your own) can be deducted, but with certain limitations.
It’s crucial to note that any benefits your company receives in exchange for the donation, such as tickets to a charity gala, need to be subtracted from the amount you can claim for tax relief. Additionally, donations cannot create or increase a company loss for tax purposes.
The process for claiming tax relief depends on the legal structure of your company:
- Limited Companies: The most common structure, limited companies deduct the value of donations from their total taxable profits before calculating Corporation Tax. You’ll report this information in your Company Tax Return.
- Sole Traders/Partnerships: Report your charitable donations on your Self Assessment tax return. The donation amount is subtracted from your trading profits before calculating your income tax liability.
Before claiming relief, ensure the recipient charity is registered with the appropriate regulatory body. In England and Wales, it’s the Charity Commission. For Scotland, it’s the Office of the Scottish Charity Regulator. Their websites allow you to verify the charity’s registration status online.
To make sure all this is as effective as possible, make sure you keep good records and that you understand where there are limitations on the amount of claimable relief. For example, sponsorship payments with significant benefits attached might not qualify for full relief.
It makes sense to get some guidance on this, so get in touch and let us make sure that everyone benefits from your corporate kindness.
