We explore some of the tax benefits associated with giving to charity, for both individuals and for companies.
Individuals
Individuals who make donations to charity can do so tax free, and in some circumstances can obtain additional tax relief. There are a number of ways individuals can give to charity:
Gift Aid Donations
Donating to Charity via Payroll
Leaving a legacy in a Will
Gifts of Land, Property or Shares
Gift Aid Donations
Gift Aid donations are treated as having been made net of the basic rate of tax, allowing the charity to reclaim the tax element from HMRC. The amount donated to charity by the individual is 80% of the total donation and the charity benefits from the remaining 20%. As a result, every £1 given through Gift Aid is worth £1.25 to the charity.
To enable the charity to reclaim the tax, the donor must complete a Gift Aid declaration, in which the donor must confirm that they are a UK taxpayer.
Higher rate or additional rate taxpayers can claim tax relief on the difference between their top rate of income tax and the basic rate of tax reclaimed by the charity. For example, if a higher rate taxpayer makes an £800 donation to charity, the charity receives a total donation of £1,000, and the individual will also receive a £200 tax repayment in respect of that donation, which can be claimed via their self-assessment tax return.
Donating to Charity via Payroll
Payroll giving schemes enable employees to make donations to charity as a deduction from their pay and to receive tax relief at source for those donations. Please note that the relief is only for tax, and not for National Insurance Contributions.
Employers must appoint a payroll giving agency in order to operate the scheme. The employer deducts the donation from the employee’s gross pay for PAYE purposes and pays it over to the payroll giving agency. The payroll giving agency passes the donation on to the employee’s chosen charity.
Leaving a legacy in a Will
Leaving a legacies to a charities is very efficient from an inheritance tax standpoint; the value of the legacy/donation will either be taken off the value of the estate that is subject to inheritance tax, or will reduce the inheritance tax rate from 40% to 36%, provided at least 10% of the estate is left to charity.
Gifts of Land, Property or Shares
Income tax or capital gains tax relief may be available for donations of land, property or shares to charity.
Income tax relief is given by deducting the value of the donation from total taxable income for the tax year in which the gift was made to the charity. Relief is claimed in the self-assessment return.
Where land, property or shares are sold to a charity for more than the cost, but less than their market value, no capital gains tax is payable.
Companies
Limited companies pay less corporation tax when they give the following to charity:
Money
Equipment or stock
Land, property or shares
Employees on secondment
Sponsorship payments
Companies claim tax relief by deducting the value of the donations from their total business profits that are subject to corporation tax.
Money
Companies pay less tax when they donate to charities, by deducting the value of the donations from their profits subject to corporation tax.
Certain payments (such as loans or distributions of company profits) are not deductible. Where companies are given something in return for their donations (such as tickets to an event), the value of what is given must be below a certain value.
Equipment or stock
Less tax is also paid when equipment or trading stock is given to charities.
Any equipment given must have been used by the company, and can include things like office furniture, computers, printers, cars, vans, tools and machinery, and full capital allowances can be claimed.
Land, property or shares
If a company gives land, property or shares in another company to a charity, it will be able to deduct the market value of the gift from business profits, and it won’t be liable to any tax on capital gains.
Employees on secondment
If a company temporarily transfers an employee to work for a charity, or if an employee volunteers for a charity in work time, any cost associated with this will be deductible as normal business expenses.
Sponsorship payments
Sponsoring a charity is different to making a donation, because the sponsoring company gets something in return for payment to the charity.
Sponsorship payments can be deducted from business profits and treated as business expenses provided the charity publicly supports the sponsoring company’s products or services, allows the company to use their logo on printed material, allows the company to sell goods or services at the charity’s event or premises, or there are links between the respective websites.
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
