How to make tax efficient charitable donations through your Limited Company

Supporting causes that are important to you through charitable donations is a great thing to do. What you may not know, however, is that using your Limited Company for these donations can also lead to significant tax benefits. In this article, we’ll cover the process of donating to charities through your Limited Company and the tax benefits of doing so.

The basics

For your donations to qualify for tax relief, they must:

– contribute only to a UK registered charity that’s officially registered with HMRC.

– be genuine and not mistaken for a loan. They must not be conditional on the charity making purchases from your company, and they must not be a distribution of your company’s profits (dividends).

You should also keep hold of the documentation of your donations for the purpose of Corporation Tax records.

Types of donations

Monetary donations – Typical monetary donations can be deducted from your Limited Company’s profits.

The maximum deductible amount is the figure that brings your profits to zero. If this threshold is exceeded, you won’t be able to declare trading losses on your tax return or carry over any extra to your next tax return. For personalised advice on your donation, speak with your SG Client Director.

Equipment donations – You can donate various types of equipment including office furniture, computers, printers, machinery, and vehicles, which all allow full capital allowances to be claimed on them.

Trading stock donations – This is the donation of any goods your business manufactures or sells. Tax relief can be claimed based on the cost of the given stock.

Before making any donations, especially non-monetary ones, it’s best to communicate with the charity to confirm they can make use of your donation and are able to accept it. It’s also very important to maintain records of the donation date, a transfer-of-ownership statement from your company to the charity, and a clear description of the donation, which will allow you to claim your tax relief.

Employee secondment – If your Limited Company has employees, you can temporarily allow an employee to work for a charity during regular work hours. While this happens, the employee must still be paid, but the wages can be deducted from your company’s taxable profit.

Receiving benefits from charities

It may be the case that a charity wishes to offer benefits in return for your donation. These benefits do not affect your Corporation Tax Relief, provided their value remains within the specified limits.

– For donations up to £100, benefits can equate to a maximum of 25% of the donation.

– For donations ranging from £101 to £1000, the maximum benefit value is £25.

– For donations of £1001 or more, the value of benefits can be up to 5% of the donation, although this is capped at a maximum of £2,500.

These regulations apply to both those within the Limited Company and those closely connected, including relatives. If the benefits the charity offers relate to the company, your donation is classified as a sponsorship payment, which is subject to different regulations. Sponsoring related parties is not advisable, as this might not be looked upon favourably by HMRC.

SG Accounting’s Charity Skydive (in Support of Dorset Mind)

If you’re now feeling motivated to donate to charity, some of the staff here at SG Contractor Accounting are completing a charity skydive with GoSkyDive to raise money for Dorset Mind. Dorset Mind, a mental health charity that is local to our office, offers mental health education, confronts stigma, and helps recovery by empowering individuals to develop resilience. Their support groups and befriending services help people to regain social skills, while their educational programs raise awareness in schools and workplaces. To support Dorset Mind through our fundraising efforts, donations can be made via our GoFundMe page here. To find out more information about this incredible charity, you can visit their website.

Remember, your SG Accountant stands ready to offer expert guidance and assistance encompassing matters influencing your Limited Company and tax obligations. To understand how charitable donations can personally reduce your overall Corporation Tax, get in touch with our team today.