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Gifts that Give Back: Tax-Deductible Charitable Contributions for Small Businesses

Catherine Stork

Giving back to your community isn’t just a thoughtful gesture for a small business; it can also make financial sense for your business. Charitable contributions allow businesses to support important causes while benefiting from tax relief. An example of this is that here at BCT Accountants, we’ve made it a tradition to skip Christmas cards for clients and instead donate to a chosen charity each year. According to Charities Aid Foundation, UK businesses donated over £1.85 billion to charities in 2021. By engaging your employees in giving, you can make a significant collective impact.


From donations to sponsorships, there are plenty of ways to combine generosity with financial planning. In this blog, let’s explore how tax-deductible giving works and how it can benefit your business.


A hand reaching out to give another hand a heart with sunshine behind. Text reads: Gifts that Give Back: Tax-Deductible Charitable Contributions for Small Businesses | BCT Accountants


Can I claim tax relief on my charitable donations?


Yes, you can claim tax relief on charitable donations in the UK, but the rules differ depending on whether you are a limited company, sole trader, partnership, or individual. Here's how it works:


Limited Companies


Limited companies can claim tax relief on charitable donations by deducting the value of the gift from their profits before paying Corporation Tax. If you run a limited company, donating to charity comes with significant tax benefits:


  • Deducting from profits. Eligible donations include money, equipment, land, shares, and sponsorship payments. For example, if your company donates £5,000 to a registered charity, your taxable profits are reduced by the same amount. This is the 'Qualifying Donations' box on your company tax return.

  • Deducting as a business expense. Sponsorships are considered a business expense, allowing you to claim back VAT if the charity promotes your company in return. Similarly, seconding employees (sending an employee to work for a charity) is tax deductible.

  • Claiming as capital allowances for donated equipment.

You can find out more on the HMRC website here.


Important Things to Remember


  • Charitable donations must meet certain criteria to qualify for tax relief.

  • The charity must be recognised by HMRC for tax purposes.

  • Cash donations must be made directly from your business account.

  • Keep clear records of all donations, including receipts and correspondence with the charity for at least 6 years.

  • Always ensure the charity you donate to is registered with the Charity Commission. You can verify this through their website.


Sole Traders and Partnerships


Unlike limited companies, sole traders and partnerships cannot deduct charitable donations as a business expense.


However, if the donation is made personally, individuals may be able to claim tax relief through Gift Aid. This scheme allows basic-rate taxpayers to boost their donations by 25% at no extra cost to themselves.


Individuals


Individuals donating to charities can also use Gift Aid. This not only increases the value of their donation to the charity but also offers personal tax relief for those paying higher or additional tax rates when they complete their self assessment tax return. Donations can be made through direct payments or payroll giving schemes, where the contribution is deducted before tax, making it a tax-efficient way to give.


For example, if a donation is £100, then the charity can claim an extra £25 through the Gift Aid scheme, subject to the donor declaring Gift Aid. If the donor is a higher rate taxpayer, they can also claim back 20% of the total (£125) meaning in this case the charity would receive £125 for a £75 donation (20% of £125, minus the original donation amount: £25 - £100).


 

Here at BCT Accountants, we’re here to help you make sense of charitable contributions and their tax implications so you can benefit your community, strengthens your brand, and reduces your tax bill. If you’re looking for further support and guidance with your business charitable donations, get in touch with Catherine on 01423 431 889 or email catherine@bctaccountants.co.uk for your FREE consultation call.


Please note: all stats are accurate for the 2024/25 tax year.

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