Making Tax Efficient Donations Through Your Limited Company

Donating to charity can benefit society and feel rewarding. What you may not realise is that making charitable contributions through your limited company can also lead to significant tax savings. In this insight, we explain how to make tax-deductible donations through your company and the financial benefits of doing so.

To qualify for tax relief, donations must go towards UK-registered charities that are officially approved by HMRC. The contributions should be genuine gifts, not loans or payments made in exchange for goods/services from the charity. You’ll also need to keep records of all donations for your company’s tax filings.

Monetary Donations

Typical cash donations are deductible from your company’s taxable profits, up to the amount that reduces profits to £0. If you go beyond this, you cannot claim losses or carry forward excess amounts. For advice tailored to your situation, consult your accountant.

Equipment & Trading Stock Donations 

You can donate physical items such as office furniture, company cars, machinery, and unsold trading stock. The full business asset value or product cost can be claimed as a deduction. Before donating, check the charity can utilise the items and legally take ownership from your company. Proper record keeping is also essential here.

You will need to account for VAT (if applicable to your company) when making such donations, but if you have donated such items with the intention for the charity to sell, hire or export them, you can apply the zero-rate VAT.

Employee Secondments

If staff temporarily work for charities during normal working hours, while still paid by you, these wages are deductible. This facilitates your company providing skilled volunteers to good causes.

Benefits from Charities

Sometimes charities offer small thank you gifts for large donors, for example tickets to a fundraising event or merchandise. These don’t necessarily prevent you from claiming tax relief, if below HMRC’s thresholds:

• Donations under £100 – benefits up to 25% of the gift’s value
• £101 to £1,000 donations – max £25 benefit value
• Over £1,001 donations – up to 5% of the gift’s value, capped at £2,500

If benefits relate specifically to your company, rather than individuals connected to it, the donation is seen as sponsorship. The rules differ here, so seek professional advice first.

Making Tax-Efficient Donations

To maximise tax relief, here are some top tips when giving through your incorporated business:

• Choose charities wisely – check they are properly HMRC approved.
• Time donations near your year-end for optimal tax savings.
• Donate appreciated assets directly, rather than selling them first.
• Be transparent and fully document all contributions.
• Consult your accountant to stay within allowable deduction limits.

The Takeaway

Donating to charity can be greatly rewarding and also financially beneficial for your limited company. With good record keeping and accounting advice, substantial tax reductions are possible. Support the philanthropic causes you care about, while also saving some money this tax season.

For more information contact Ballards LLP at 01905 794 504

Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.