Reducing your Corporation Tax by making charitable donations through your Limited Company

By Published On: 9 August 2023Tags:

Donating to charity is a great way to support causes that matter to you. But did you know that by donating through a Limited Company, it can claim tax benefits on the donation? In this blog, we outline how donating through a Limited Company works and the tax relief it can claim, and how using FreeAgent can help the process of your donation.

Some ground rules

To gain tax relief on a donation, the following conditions must be met:

  • You must make sure that any charities you donate to through a company are UK registered charities with HMRC
  • The donation must be genuine, will not be an construed as a loan, is not made on the condition that the charity purchases something from your company, and is not a distribution of company profits (dividends)

You must also be able to provide supporting documentation for your donations for Corporation Tax purposes.

Types of donations

Donating money – Standard monetary donations can be deducted from a Limited Company’s profits.

The maximum it can deduct is the amount that would take your profits to zero. If it exceeds this limit, it can’t declare trading losses on the tax return or carry over any remaining amount to the next tax return. Your Aardvark Client Director will be able to advise you further on this.

Donating equipment – This includes things such as office chairs, desks, printers, computers, machinery and vehicles. Full capital allowances can be claimed on these items.

Donating trading stock – This includes any stock of goods your business makes or sells. Tax relief can be claimed based on the cost of the stock given away.

Before donating any of these items, make sure to get in contact with the charity first to see if they can make use of it and are able to accept the donation. You must also make sure you have a record of the date of the donation, a statement that confirms the transfer of ownership from your company to the charity and a clear description of what was donated to be able to claim your tax relief.

Seconding employees – Should a Limited Company have any employees, it can temporarily allow an employee to work for a charity rather than at the company during their usual working hours. During this time it will still have to pay the employee. However, it will be able to deduct those wages from the company’s taxable profit.

What happens if a charity gives you something in return?

There may be times when charities want to give you something in return for your donation. This won’t affect the Corporation Tax Relief provided that any benefits given are worth under a certain amount.

  • For donations up to £100, the benefit can be up to a maximum of 25% of the donation
  • For donations between £101 and £1000, the maximum benefit value is £25
  • For donations of £1001 or more, the maximum value of the benefit is 5% of the donation value or £2,500 (whichever is lower)

These rules apply to those within the Limited Company and those that are closely connected to a company, including relatives.

Also, if the benefit you receive is related to the company, the donation will instead be classed as a sponsorship payment and is subject to different rules.

How Freeagent helps with this

Providing you make these using your company bank account/s which are linked to your FreeAgent account, you will see any transactions pulled through on your banking section within your application. Once your bank integration has updated, you can look to explain this transaction as shown in the snapshot below:

Here on FreeAgent, you can also upload your receipt/documentation against the relevant transaction to support the explanation.

The Aardvark Charity Skydive (in support of Dorset Mind)

So if you’re now feeling inspired to donate to a charity, some of the staff here at Aardvark Accounting are doing a charity skydive with GoSkyDive as a fundraiser for Dorset Mind! Dorset Mind is a mental health charity local to the Aardvark offices that educates, challenges stigma and inequality, and promotes recovery by empowering individuals to develop resilience. Their support groups and befriending service help people regain social skills. They also deliver educational awareness programmes for schools and workplaces. If you’d like to support us in fundraising for Dorset Mind, you can donate here, or to find out more about this amazing charity, take a look at their website.

Remember your Aardvark Accountant is always on hand to offer their expert advice and support, relating to all matters that can affect you or a business and tax obligations. For more information on how charitable donations can personally reduce your overall Corporation Tax, get in touch with the team today.

Reduce your Corporation Tax by giving to charity

Share This Article, Choose Your Platform!

Just starting out?

  • Complete business set-up at no extra charge

  • Bespoke tax and IR35 advice

  • FreeAgent accounting software

Switching Accountant?

  • Switching is quick and easy

  • Quick and responsive personal service
  • Pro-active tax review and advice on improvements