Charitable Donations - What Tax Relief is Available and How to Claim
There are different tax and accounting rules depending on the entity making the charitable donation with differences between individual, sole trader and partnership charitable donations and charitable donations made by limited companies.
The nature of the donation (gift aid, payroll giving, property, etc.) also has an impact upon the tax relief available and how this can be claimed.
This article sets out more information on the tax and accounting rules for charitable donations.
Charitable Donations by an Individual, Sole Trader or Partnership
Tax relief is applied on donations by individuals, sole traders and partnerships to charities and community amateur sports clubs (CASCs) so that the effective tax is zero (£0).
The form of tax relief depends upon the nature of the donation, this can include;
Gift Aid (direct cash payments to charities by an individual, sole trader or partnership);
From your salary or pension through a payroll giving scheme (not applicable to CASCs);
Through land, property or shares;
Through a donation in your will.
A list of approved community amateur sports clubs (CASCs) can be found here - www.gov.uk/government/publications/community-amateur-sports-clubs-casc-registered-with-hmrc--2
Gift Aid Donations
Donations through Gift Aid receive 25p in tax relief for every £1 donated. Therefore, for every £1 donated, £1.25 will be received by the charity or CASC*.
To claim Gift Aid you will give a declaration to each charity you want to donate to, usually at the time of the donation. Charities and CASCs will then make a claim from HMRC for this on your behalf.
*Note - Your donations will qualify for Gift Aid provided they are not more than four times what you have paid in tax in that tax year.
If you pay tax above the basic rate, you can claim the difference between the rate you pay (e.g. 40p) and basic rate on your donation (e.g. 25p). This can be claimed either via self-assessment or by asking HMRC to amend your tax code.
Charitable Donations Via Your PAYE Salary / Pension
If your employer, company or personal pension provider runs a payroll giving scheme, you can donate directly from your wages or pension. This happens before tax is deducted from your income (from your gross salary).
The tax relief you get depends on the rate of PAYE tax you pay. To donate £1, you pay;
80p if you’re a basic rate taxpayer (earning between £12,570 and £50,270);
60p if you’re a higher rate taxpayer (earning between £50,270 and £150,000);
55p if you’re an additional rate taxpayer (earning more than £150,000).
Individual Donations of Land, Property and Shares
You do not have to pay tax on land, property or shares you donate to charity. This includes where a sale is made for less than the market value.
You can get tax relief on both;
Income Tax (not applicable to CASC donations);
Capital Gains Tax.
You will need to keep records of the donation to show that you have made the gift or sale and that the charity has accepted it.
Tax relief can be claimed either via self-assessment or a by change to your tax code if you file self-assessment returns.
You pay less Income Tax by deducting the value of your donation from your total taxable income. Do this for the tax year in which you made the gift or sale to charity.
In addition, you do not have to pay Capital Gains Tax on land, property or shares you give to charity provided the sale is not at less than the market value.
Charitable Donations Made In Your Will
For charitable donations made via your will, your donation will either be taken off the value of your estate before Inheritance Tax is calculated or reduce your Inheritance Tax rate (if 10% or more of your estate is left to charity).
You can donate a fixed amount, an item or what is left in your will after other gifts have been given out.
Charitable Donations by a Limited Company
A limited company can deduct charitable donations from its profits, therefore reducing its corporation tax liability (currently 19% of profits for all companies).
Charitable donations by a limited company can include;
cash;
equipment or trading stock;
land, property or shares in another company (shares in your own company don’t qualify);
employees on secondment;
sponsorship payments.
This includes donations to both charities and CASCs (see above for a list of approved CASCs).
Limited companies cannot include the following as charitable donations;
Loans that will be repaid by the charity;
Donations made on the condition that the charity will buy property from your company or anyone connected with it;
Donations that are a distribution of company profits (e.g. dividends).
Note - any benefits that the company does receive in return for a donation must be below a certain value to qualify.
Donating Equipment and Trading Stock
A limited company can claim full capital allowances on the cost of equipment donated to charity. To qualify, the equipment must have been used by the company making the donation.
If the company donates its trading stock to a charity or CASC, the company doesn’t have to include anything in its sales revenue to account for the value of the gift. This means it gets tax relief on the cost of the stock that has been donated.
If the company is VAT-registered, it will need to account for VAT on the items that have been given away.
However, the company can apply zero rate VAT to the items if the company makes the donation specifically so that the charity can;
sell the items;
hire out the items;
export the items.
Seconded Employees of a Limited Company
The company can deduct related costs as business expenses if;
the company temporarily transfers an employee to work for a charity (known as a "secondment");
an employee volunteers for a charity in their work time.
The company must continue to pay the employee via PAYE. The company can set the costs (including wages and business expenses) against its taxable profits as if the employee is still working for the company as usual.
This doesn’t apply to CASCs (see above).
Charity Sponsorships by a Limited Company
A limited company can deduct sponsorship payments from its business profits before tax by treating them as business expenses.
Payments qualify as business expenses if the charity:
publicly supports the companies products or services;
allows the company to use the charities logo in its own printed material;
allows the company to sell goods or services at a charity event or premises;
links from the charities website to the limited companies.