The short answer is YES, you can make a charity donation from your limited company! You will also reduce your corporation tax bill for certain donations – and there are more options than you think!
So what can I donate to charity?
Well I guess the most common, and simplest, donation is of course money – it’s easy to do, and there is such a wide variety of ways to do this. Giving money to a charity or community amateur sports club (CASC) is an allowable expense for corporation tax.
As long as the donation is not a loan to be repaid, in return for goods or services, or a distribution of your profits – ie a dividend – then the amount of your donation will reduce your profits and therefore your corporation tax bill.
Other ways to donate and reduce your tax bill include:
- Equipment – this must be equipment you have already used in your business, and can include office furniture, computers, printers, cars, vans, tools and machinery.
- Stock – you can donate goods that you sell as part of your business, and you then wouldn’t raise a sales invoice. However there are some special rules if you are VAT registered, you may still need to account for the sales VAT on the goods – so please do check with us/your accountant as to what you need to do here.
- Land, property or shares in another company (your own company’s shares don’t count) – you can gift or sell these to a charity at lower than the market value. There will be no capital gains tax to pay, and the market value of the donation will be deducted from your profits to work out your corporation tax bill.
- Seconding an employee – if you send one of your employees to work a charity (secondment) or one of your employees volunteers with a charity during ‘normal working hours’ then you’d just continue to pay them via PAYE as normal and this will still be counted as a normal business expense.
- Sponsorship of charities – if you give a charity money in return for something, then this may come under sponsorship, and therefore would be a normal business expense. This includes if the charity publicly supports your products or services, allows you to use their logo in your printed material, allows you to sell your goods or services at their event or premises or links from their website to yours.
What do I need to do to ensure the donation reduces my corporation tax bill?
As with most things – good record keeping and speaking to us/your accountant are a must! When reconciling money donations in Xero if there isn’t a Donations code, please add one in the 400’s range as an expense (or ask us to add for you), and make sure you add a description to say it’s a donation, who to etc so we don’t have to annoy you by asking!
For all other donations please keep full records (who, what, how much, etc) and let us/your accountant know asap – preferably before making the donation. We can then run through the implications of the donation, any special rules, or any specific things you need to do (ie for share donations there are forms that need to be filed with Companies House).
We can then ensure that not only are the rules and any other requirements fulfilled, but also that we account for your donation in your accounts and corporation tax return.
Consult your accountant!
As with the majority of things accounting related there are some specific rules involved when it comes to donating things other than money – so please do get advice regarding your own circumstances, preferably before you make the donation! If you’d like to talk through something you’re thinking about please do get in touch via our email – hello@pinkpigfinancials.co.uk
Source: HMRC
