Investors Club: Tax Benefits for companies
If you are a company looking to become a donor, there are several tax benefits you could receive depending on your type of giving.
- Donating money
- Donating equipment and trading stock
- Donating land, property or shares
- Seconding employees
- Sponsoring a charity
- Claiming tax relief
Your limited company pays less Corporation Tax when it gives the following to charity:
- equipment or trading stock (items it makes or sells)
- land, property or shares in another company (shares in your own company don’t qualify)
- employees (on secondment)
- sponsorship payments
You can claim tax relief by deducting the value of your donations from your total business profits before you pay tax.
There are different rules for sole traders and partnerships.
- Your limited company can pay less Corporation Tax when it gives money to a charity or community amateur sports club (CASC).
- Deduct the value of the donations from your total business profits before you pay tax.
Payments that don’t qualify
You can’t deduct payments that:
- are loans that will be repaid by the charity
- are made on the condition that the charity will buy property from your company or anyone connected with it
- are a distribution of company profits (eg dividends)
If you’re given something in return
- Any benefits you’re given in return for your donation (eg tickets to an event) must be below a certain value.
|Donation amount||Maximum value of benefit|
|Up to £100||25% of the donation|
|£101 – £1,000||£25|
|£1,001 and over||5% of the donation (up to a maximum of £2,500)|
- This applies to benefits given to any person or company connected with your company, including close relatives.
- If you get a benefit that’s related to the company your donation qualifies as a sponsorship payment.
Equipment and trading stock
Your limited company pays less Corporation Tax if it gives equipment or items it makes or sells (‘trading stock’) to a charity or community amateur sports club (CASC).
You can claim full capital allowances on the cost of equipment.
To qualify, the equipment must have been used by your company. This includes things like:
- office furniture
- computers and printers
- vans and cars
- tools and machinery
Giving trading stock
If your company donates its trading stock to a charity or CASC, you don’t have to include anything in your sales income for the value of the gift. This means you get tax relief on the cost of the stock you’ve given away.
If your company is VAT-registered, you’ll need to account for VAT on the items you give away.
However, you can apply zero VAT to the items – even if you normally charge the standard or reduced rate – if your company makes the donation specifically so that the charity can:
- sell the items
- hire out the items
- export the items
This means you can reclaim the VAT on the cost of the trading stock you donate.
If you can’t zero rate the items, use the VAT rate you normally apply to them.
Land, property and shares
Your limited company could pay less Corporation Tax if it gives or sells any of the following to charity:
- land or property
- shares in another company
You can’t claim for gifts or sales of shares in your own company.
Contact your chosen charity first to make sure it can accept your gift.
What you get
If you give these to charity (including selling them for less than they’re worth):
- you won’t have to pay tax on capital gains
- you can deduct the value of the gift (its ‘market value’) from your business profits before you pay tax
Work out the market value
You’ll need to know how much the gift would sell for in an open market (its ‘market value’) to calculate your tax relief. You can get professional help with this.
What you need to do
You must keep documents relating to the donation to show that you’ve made the gift or sale and that the charity has accepted it. You must keep these records for at least 6 years.
Land or property
You must get a letter or certificate from the charity which contains:
- a description of the land or property
- the date of the gift or sale (the ‘disposal date’)
- a statement confirming that it now owns the land or property
You must fill in a stock transfer form to take the shares out of your company’s name and put them into the charity’s name.
Selling land, property or shares on behalf of a charity
When you offer a gift of land, property or shares, the charity may ask you to sell the gift on its behalf.
You can do this and still claim tax relief for the donation, but you must keep records of the gift and the charity’s request. Without them, you might have to pay Corporation Tax.
You can deduct any costs as normal business expenses if:
- your company temporarily transfers an employee to work for a charity (known as a ‘secondment’)
- an employee volunteers for a charity in work time
Your company must continue to pay the employee and run Pay As You Earn (PAYE) on their salary. You can set the costs (including wages and business expenses) against your taxable profits as if they were still working for you.
Sponsoring a charity
- Charity sponsorship payments are different from donations because your company gets something related to the business in return.
- You can deduct sponsorship payments from your business profits before you pay tax by treating them as business expenses.
Payments qualify as business expenses if the charity:
- publicly supports your products or services
- allows you to use their logo in your own printed material
- allows you to sell your goods or services at their event or premises
- links from their website to yours
- If you’re unsure whether a charity payment qualifies as a sponsorship payment or a donation, contact the charities helpline.
How to claim tax relief
There are different ways to claim tax relief depending on the type of donation you make.
Deduct from your profits
Claim relief in the Company Tax Return that covers the accounting period during which you made the donation or sale if you have:
- donated money
- given or sold land, property or shares
Enter the total value of your donations in the ‘Qualifying donations’ box of the ‘Deductions and Reliefs’ section of your tax return.
There are special rules for working out the value of your donation if you give or sell land, property or shares to a charity.
Deduct as business expenses
Deduct costs as normal business expenses in your company’s annual accounts if you have:
- seconded employees
- sponsored a charity
Claim capital allowances
Claim capital allowances on the cost of equipment you donate in your company’s annual accounts.
If you donate more than your profit
The most you can deduct is the amount that reduces your company’s profits to zero.
If you donate more than your total profits you can’t:
- declare trading losses on your tax return
- carry over any remaining amount to your next tax return