With lockdown in full effect thanks to COVID-19, the NHS stretched to capacity, and the vulnerable increasingly isolated, it’s important now more than ever to think about helping others wherever possible. Of course, we’re all facing an unprecedented situation and work may be thin on the ground - particularly for the self-employed - but if you’re in the lucky position of having an undisturbed income, you may be considering donating to charity. If you're a contractor, donating through your limited company can make the money go further. It can also create a sense of community – after all, a business choosing to donate reaches a wider audience than donating personally normally could.
So, let's get stuck into a rundown of the ways your business can make a difference and the benefits of donating.
Donating to charity via a limited company
Donating via your limited company opens up numerous possibilities for giving to charity. 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.
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 is 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. This is the most complex way to donate by far.
Not as bad as it sounds! What it really means is that 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. This may have an effect on your employees' 80% furlough payments under the Coronavirus Job Retention Scheme, however, so check with HMRC before undertaking this method of charitable giving.
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.
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.
Can I donate to charity 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 a 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 amend 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.
Use your limited company for good - if you can
There has never been a time, certainly in our lifetimes, where charities and the NHS need our help more. However, we understand that now may not be the best time for your limited company - during this pandemic, nothing is certain.
If you are lucky enough to still have a regular income and can spare even a small donation, there are certain UK charities that could definitely use some help right now; Age UK, The Trussell Trust (National Foodbank), Mind, and, of course, the NHS Charities Together are just the first in a long list.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news, and contractor guides.