It has been great to see people pull together this year, with many individuals and businesses making donations to charities where they can.
But what are the rules around paying tax on charitable donations in the UK? We listed what you need to know about donating to charity as both an individual and as a business…
Personal charity donations
Personal donations to charities are tax free. The tax goes directly to the charity and can be paid through Gift Aid, straight from your wages or pension, through land, property or shares, or in your will.
When donating to a charity through Gift Aid they can claim an extra 25p for every £1 donated, at no extra cost to you.
For the charity to claim you need to make a Gift Aid declaration by filling in a form you can get from the charity you are donating to. If donating to more than one charity, you need to give a separate Gift Aid declaration to each.
If you pay Income Tax above the 20% basic rate you can claim back the difference between the tax you paid on a donation and what the charity got back. For example, if donating £100 the charity can claim Gift Aid to top it up to £125, and you can personally claim back £25.00. This is claimed when filling in your Self Assessment tax return. If you don’t submit one, you can contact HMRC directly.
It’s important to note that if your income has fallen you may not pay sufficient tax meaning that HMRC can chase you for the shortfall.
Payroll Giving Scheme
When donating to charity through your employer or pension provider’s Payroll Giving scheme, you will pay National Insurance contributions on your donation but won’t pay Income Tax on the amount donated. Any donations will be taken before you pay tax.
The tax relief you receive depends on the rate of tax you pay. To donate £1 in England and Wales, you pay:
- Basic rate taxpayer – 80p
- Higher rate taxpayer – 60p
- Additional rate taxpayer – 55p
And in Scotland, to donate £1 you pay:
- Starter rate taxpayer – 81p
- Basic rate taxpayer – 80p
- Intermediate rate taxpayer – 79p
- Higher rate taxpayer – 59p
- Top rate taxpayer – 54p
Donating land, property or shares
You won’t pay tax on land, property or shares donated to charity, and can claim tax relief on both Income Tax and Capital Gains Tax.
To pay less Income Tax, deduct the value of your donation from your total taxable income in the tax year in which you donated. If you submit a Self Assessment tax return, add the amount you’re claiming in the ‘Charitable giving’ section of the form to reduce your tax bill. If you do not complete a tax return, contact HMRC with details of the donation and your tax relief amount to either get a refund, or your tax code changed to pay less Income Tax for that tax year.
You must keep records of the donation to show that you’ve made the gift or sale and that the charity has accepted it.
Business charity donations
Donations made to charity by sole traders and partnerships receive the same tax relief as those made by individuals, but there is different relief for limited companies.
Your limited company pays less Corporation Tax when giving the following to charity:
- equipment or trading stock
- land, property or shares in another company
- employees (on secondment)
- sponsorship payments
You can claim tax relief by deducting the value of your donations from your total business profits before tax.
You cannot deduct payments that:
- are loans to be repaid by the charity
- are made on the condition that the charity will buy property from your company or anyone connected with it
- are a distribution of company profits (e.g. dividends)
Any benefits you are given in return for your donation (e.g. event tickets) must be below a certain value:
- Up to £100: 25% of the donation
- £101 – £1000: £25
- £1001 and over: 5% of the donation (max £2500)
If receiving a benefit related to the company, your donation qualifies as a sponsorship payment. This is different from a donation because your company gets something related to the business in return.
You can deduct sponsorship payments from your business profits before paying tax by treating them as business expenses.
Payments qualify as business expenses if the charity:
- publicly supports your products or services
- allows you to use their logo in your own printed material
- allows you to sell your goods or services at their event or premises
- links from their website to yours
There are different ways to claim tax relief depending on the type of donation you make:
- Deducting from your profits – Claim relief in your Company Tax Return covering the accounting period during which you made the donation if you have donated money or have given or sold land, property or shares. Enter the total value of your donations in the ‘Qualifying donations’ box of the ‘Deductions and Reliefs’ section of your tax return.
- Deducting as business expenses – Deduct costs as normal business expenses in your company’s annual accounts if you have seconded employees or sponsored a charity
If you have any questions about tax relief when donating to charity, or need assistance when claiming tax relief on your tax returns please get in touch with us here at Magpie Accountancy.