UK Tax Relief on Charitable Donations Explained

Giving to charity is a great way to support communities less fortunate than ourselves, but did you know that it can also benefit your business and your individual tax bills? In this blog, we take a look at what UK tax relief on charitable donations means for individuals and charities through schemes like Gift Aid. We also explore how businesses can gain tax advantages when giving to charity.

By understanding how UK tax relief on charitable donations works,  you can make informed decisions that benefit both your chosen cause and your financial goals.

Individual Donations and Gift Aid

If you decide as an individual to donate to a registered charity, your contributions can go further through the government's Gift Aid scheme. All you need to do is complete a Gift Aid declaration (often provided at the time of giving). Your chosen charity can then reclaim £0.25 for every £1 of your donation, effectively increasing its value by 25%. For example, a £100 donation becomes £125 for the charity.

If you're a higher or additional rate taxpayer, you can also access UK tax relief on your charitable donation. This advantage works by claiming back the difference between the basic rate and your tax rate on the gross value of your donation. Make sure to keep records of your donations so you can claim this tax relief on your Self Assessment tax return.

Business Donations and Corporation Tax Relief

If you own a limited company, your business is eligible for UK tax relief on charitable donations. In most cases, you simply need to deduct the value of the donations from the company's total profits before calculating Corporation Tax.

This tax relief applies to various forms of donations, including:

Monetary Donations: If your business gives money to charity or a community amateur sports club, you can deduct this amount from your company's profits and reduce the Corporation Tax owed. However, be aware that if you receive something in return for this charitable contribution, it must be below certain thresholds to still qualify for the tax relief.

Donating Equipment or Trading Stock: If your company donates equipment or items it produces or sells, you can claim full capital allowance or get tax relief on its cost, depending on the type of item donated.

Land, Property, or Shares: You can also gain UK tax relief on charitable donations that include land, property, or shares (excluding those in your own company.) Firstly, you don't have to pay capital gains when giving or selling these items for less than they're worth to a charity. Furthermore, you can deduct their market value from your profits and potentially reduce your tax liability.

Employee Secondment: If one of your employees temporarily transfers to work for a charity, you can treat their salary and any associated costs as business expenses, provided certain conditions are met, reducing corporation tax liability.

Sponsorship Payments: Sponsoring a charity event or activity differs from donating to a charity because your company typically receives something in return, such as advertising. However, you can still receive tax benefits from charity sponsorships by claiming them as a business expense.

Important Considerations for Businesses

While you can gain UK tax relief on charitable donations, following the proper processes is vital to ensure you don't unwittingly end up with a hefty tax bill. These include maintaining accurate records and receipts of all charitable donations, confirming the charity's eligibility and accurately assessing the value of non-cash contributions to make the correct deductions.

If you need guidance or support with your tax planning or bookkeeping to ensure you are maximising your tax relief on donations while following the correct processes, please get in touch with our experienced team of accountants.