There are multiple ways you can make donations to charity through your business. Donating from your own income is the most direct, uncomplicated and personal way to give. However, if you operate a limited company, giving via your business could help to get more mileage from your donation and make every penny count. It’s also a great PR and community-building opportunity, especially if the cause is something that your brand holds dear and your audience affiliates with.
Read on to find out the different ways that you can give to charity, the benefits of donating through a limited company and some alternative donation methods to really get the most out of your money.
Donating via a limited company
Donating via your limited company opens up numerous possibilities for giving to charity. It allows you to donate to a community club, like an amateur sports team, and other local causes as opposed to just registered charities. It doesn’t just have to be money that you donate either; you can donate equipment, furniture, tech, vehicles, tools, training or services, for example.
The main draw to limited company donations, however, is that they can be included in your accounting as a business expense. Limited company donations will also come straight out of your business account, which will lower your annual profits and, therefore, your corporation tax (though this only applies when giving to national charities). You’ll need to keep all of the documentation supporting the donation to be able to declare it when filing your tax return.
Donating as a sole trader, director or via a partnership
Donating as a sole trader, a director or via a partnership doesn’t come with all the same benefits as donating via a limited company, but it still helps the money go further than a personal donation. Donating through your business as a sole trader isn’t classed as a day-to-day business cost as it is with a limited company, meaning you would have to record the expense as personal ‘drawings’, or a non-business transaction.
However, donating as a sole trader does still provide tax relief, provided your tax rate is higher than the basic rate. You can claim the difference between your tax rate and the basic rate on your donation, either through your Self-Assessment Tax Return or by requesting an amendment to your tax code. So for example, if you make a donation of £100, the charity could claim £20 and you could claim £20 in tax relief, since the higher tax rate is 40% and the charity has already claimed 20% of that.
Are there any drawbacks to donating to charity through my limited company?
There are many benefits to giving to charity via your limited company, but it’s important to remember that there are certain legal limitations to take into consideration when donating.
A limited company is an entirely separate legal entity from the business owners, i.e. you, despite it being your business. Even if you’re the sole director and shareholder, by donating via your limited company, legally the company is making the donation, not you. This allows the limited company to deduct donations from its taxable profit, which is what saves on corporation tax. You can’t make personal tax savings via a limited company donation.
Another rule to keep in mind when giving to charity via your limited company is that the donation must be genuine. For example, it can’t be a loan, a distribution of profits, a dividend or have any conditions whatsoever attached to it – it has to be intended as an altruistic act of giving.
If you do happen to receive anything in return for your generosity, you can only accept a gift (monetary or otherwise) worth up to 25% of your donation, if you donated up to £100. If your donation was over £100 but below £1,000, then you’re limited to £25. If your donation was £1,000 or over, then you can’t accept a return gift that exceeds 5% of your donation value. These rules apply not just to you as the limited company director, but to your family, business associates and close friends too.
What can I donate to charity via my limited company?
You can give to charity through your business in a variety of ways, all of which have individual benefits and help to make your donation go further. For a donation with a more personal touch, why not consider gifting one of the below instead of a cheque?
You can still claim full capital allowances on any equipment that you donate to charity. However, the equipment must have been used by your limited company, i.e. a laptop that’s no longer needed. You could also donate furniture, company vehicles, tools, machinery, and sports/gym equipment – all provided that it wasn’t bought new to be gifted. Any VAT applicable will still have to be accounted for when donating equipment, but VAT can be deducted if the donation is made specifically for the charity to sell, rent out or export.
Donating trading stock
Trading stock often falls under the ‘equipment’ category of donations, but there is a differentiation. It’s actually the gifting of the products or services that your limited company produces or supplies - for example, you could donate your services as a graphic designer to produce fundraiser leaflets. If you donate trading stock, you can claim tax relief on its value by omitting it from your sales income figure. Any VAT applicable will also have to be accounted for with this method of charitable giving.
Donating land, shares or property
Expect quite the paper trail when donating land, property or shares (provided the shares are for another business, not your own) to charity. You’ll need to obtain a letter from the charity detailing the donation, the donation date and a signed confirmation that the charity is now the legal owner – all of which you’ll have to keep filed for a minimum of 6 years. You can claim corporation tax relief on any land, property or shares which you give to charity, which can be calculated by deducting the market value of the donation from your profits before tax.
Donating an employee's time
You can temporarily transfer an employee (also called secondment) to work or volunteer for a charity, their free-of-charge services being the donation itself. Continue to pay the employee and run PAYE as normal; you can deduct their salary and business expenses from your taxable profits as per. Just make sure that the hours spent seconding or voluntarily working are recorded and filed, with the time clearly allocated to the charity as opposed to a client or a business task.
Generally, this is the only type of charitable donation where you should expect to receive something in return. You can deduct sponsorship payments from your profits before tax by running them through as expenses to reduce your corporation tax, provided that the charity does one of the following:
- Publicly supports your business
- Allows you to use their branding in your own marketing materials/on your website
- Allows you to sell your products or services at one of their events or premises
- Supplies an overt link from their website to yours.
Donating through your limited company is a great idea
Donating to charity is an excellent way of gaining some inspiration, taking stock, and putting your hard work to good use in the form of helping those who really need it. While personally donating has never been easier – from GoFundMe pages and GiftAid, to Payroll Giving Schemes and leaving charitable gifts in wills – donating through your limited company offers many benefits, for both you and your cause of choice.
About the Author
After graduating from De Montfort University with a degree in Literature in 2014, Hannah has worked in every area of creative marketing since. She has freelanced as a journalist, worked in-house as a copywriter and has project-managed for a variety of international clients with UK advertising agencies. She now writes in-house for Larsen Howie, keeping a keen eye on all things contracting and tax.