What can I donate to charity via my limited company?
With the cost of living rising and the news rife with stories of vulnerable people struggling to get by, those of us in more fortunate positions have considered ways in which we might help. For many, this usually involves donating to charity but, if you’re self-employed then donating through your limited company can help the money go further. It can also create more awareness as a company can promote its donation and the reasons behind it in a way that a private individual may not be able to.
Some contractors might have concerns about the ins and outs of donating to charity via their limited company though, so we have a full rundown of the ways your business can make a difference with donations, and what the benefits are.
Why donate to charity via my limited company?
Donating through your limited company opens up more ways that you can give to charity than you have access to as an individual. For instance, you don’t just need to donate money. Other options include training, services, tools, equipment, furniture, vehicles and tech.
Of course, there are benefits for you as well. The main one is that charitable donations via your limited company can be included as a business expense in your bookkeeping. And, as they come out of your business account, they also lower your annual profits and, as a result, your corporation tax (although it’s worth noting that this is only applicable when donating to national charities).
You need to ensure that you keep all supporting documentation for the donation so that you can declare it on your tax return.
What can I donate to charity through my limited company?
There are many, many ways that you can give to charity through your business besides a simple monetary donation. All of them have benefits to you but also help your donation to go much further than cash could. We’ve pulled together some ideas…
Depending on the equipment, it can be of use to charities in different ways. Equipment you might donate could include:
- Company vehicles
However, the equipment donated must have been used by your limited company e.g. a laptop that you no longer need, not one that was bought new in order to be donated. Any applicable VAT will have to be accounted for when you donate equipment, but this can be deducted if the donation is for the charity to sell, export or rent out.
You can also still claim full capital allowances on any equipment that you donate.
Trading stock is slightly different to equipment, although they often get put under the same category of donation. Donating trading stock refers to the gifting of a product or service that your businesses makes or supplies. For instance, if you were an accountant, you may donate your accounting services to a charity.
You can claim tax relief on trading stock donations by omitting the value from your income figure. You will have to account for any applicable VAT with this form of donation.
Land, shares, or property
Donating land, property or shares (for another business, not your own) to charity does come with quite the paper trail. You need to acquire a letter from the charity confirming the donation, the date of the donation, and a signed confirmation that the charity is now the legal owner, and you need to keep all of this filed for at least six years.
You are able to claim corporation tax relief for this kind of charitable donation, which is calculated by deducting the market value of the donation from your before-tax profits. This is the most complex way to donate, although it can yield a significant tax relief.
We admit the idea of donating people sounds a bit dodgy, but it’s not like that really. It means temporarily transferring an employee (a secondment) to work or volunteer for a charity. The fact that their services are free of charge is the donation. You continue to pay the employee and run PAYE as you usually would, then deduct their salary and business expenses from your pre-tax profits.
You will need a record of all of their hours spent on secondment as evidence, with the time allocated to the charity. This may not be possible for all limited company contractors, but for those who employ, say, their spouse or partner in an admin role, it may be something to consider.
This is the only type of charitable donation where you should expect something from the charity in return. Sponsorship payments can be deducted from pre-tax profits as expenses to reduce corporation tax, provided the charity does one of the below:
- Publicly supports your limited company;
- Allows you to use their branding on your marketing materials and/or website;
- Allows you to sell your products or services at one of their events or from their premises; .
- Supplies a clear link from their website to your business’s.
What are the limitations to donating via my limited company?
While there are many benefits, you should also be aware of the legal limitations that come with donating via your limited company. These include:
- You can’t make a personal tax saving through a limited company donation;
- The donation has to be an altruistic act of giving in so much as it can’t be a loan, a dividend, profit distribution, or have any strings attached;
- If you do receive something in return for your donation, it can only be worth up to 25% of your donation for donations up to £100. If your donation was between £100 and £1,000 then it can’t be more than £25, and if your donation was over £1,000 then you can’t accept a gift of more than 5% of your donation value. These rules also apply to your family, business associates and close friends.
Use your limited company for good
If you’re able to donate from your limited company then now is the time to do it. People are struggling with the high cost of living and the effects of the pandemic and charities are struggling for the resources to help them.
This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant or a finance expert for any tax advice. For the most up to date tax information, you should visit Gov.uk.