There are many ways to help charities. Our advice is that you set up ways to help now, so that when an emergency happens you and your staff can act quickly.
How can you help? Make donations, donate your time, link your marketing to the cause, organise an event, or make a gift of your product or services.
The Government wants to encourage giving, so there are various forms of tax relief available that boost donations at no cost to you or your staff.
Your business can claim tax relief on that donation, whether it is large or small, one off or regular, by using Gift Aid.
Gift Aid is a scheme by which tax relief is available for donations of money. The way Gift Aid works depends on whether your business is a company, you are a sole trader or trading in partnership:
To give through Gift Aid, your company simply pays the money to charity. Your company does not deduct any tax from the donation and does not need to make a Gift Aid declaration to the charity. To get the tax relief, you deduct the amount of the donation from total profits prior to calculating your company’s corporation tax.
For the self-employed:
Gift Aid donations from the self-employed (sole traders) are treated in the same way as Gift Aid by individuals. Therefore, your donation will be treated as paid out of taxed income and the charity will reclaim basic rate tax on the donation from HM Revenue & Customs. For qualifying donations made by donors on or after 6 April 2008, charities will claim Gift Aid repayments at the basic rate of 20 per cent and they will also be entitled to a transitional relief worth 3p for every £1 donation they receive under the Gift Aid scheme (the transitional relief will be paid on qualifying donations made up to 5 April 2011). This means that for every £1 given, the charity will continue to receive an additional 28p in Gift Aid. As a sole trader, you will be required to complete a Gift Aid declaration for the charity. If you are a higher rate taxpayer, you can get relief on the difference between the basic rate and the higher rate of tax on the gross amount of the gift – you simply show the amount of the gift on your tax return.
Gift Aid donations received from businesses that are run as partnerships will be split into individual donations of equal amounts from each of the individual partners, unless the partnership decides to split them in different proportions. The tax position for each partner is the same as Gift Aid for individuals and each partner must complete their own Gift Aid declaration. Again, if a partner is a higher rate taxpayer, they can get relief on the difference between the basic rate and the higher rate of tax on the gross amount of the gift provided they show the amount of the gift on their tax return.
Donations that are freely given and for which your business, as the donor, receives nothing in return are outside the scope of VAT. However, if your business receives benefits beyond an acknowledgement from the charity in return for making the payment you should refer to the guidance on sponsorship below.
Gifts of Equipment or Trading Stock to Charity
Your business may be able to claim tax relief on that donation. It applies to items that your business manufactures or sells (for example, a toothpaste manufacturer donating toothpaste to a homeless charity), and to plant or machinery that your business uses (for example, an IT company donating a computer to a youth advice charity), providing these are used in the course of your trade. Your business must be a trading company, a sole trader or a trading partnership.
If you donate goods manufactured or sold in the course of your trade, then nothing is included as a trading receipt when you calculate the profits of the trade for tax purposes, so you receive relief for the cost of the item against your taxable profits. Where you donate machinery or plant used in the course of your trade, you can treat it as having been disposed of at nil value when you calculate your capital allowances. Total c pital allowances will be equal to the cost of the item.
Your business can claim tax relief for sponsorship of a charity, provided the payment is made wholly and exclusively for the purposes of your trade.
Sponsorship is generally different from a donation of money because your business gets something in return. Where, for example, you get publicity for your business or one of its products, which is a reasonable return for the amount paid, it may be regarded as a legitimate trading expense on which tax relief may be claimed. Relief is
not available where the payment relates to the acquisition, improvement or extension of an asset held for use in the business. Where a payment qualifies for relief, all you need to do is deduct the value of the sponsorship payment when your business is calculating its profits for tax purposes. Whether a payment qualifies for relief depends on the circumstances – you should contact HMRC Charities on 0845 302 0203 (8am to 5pm Monday to Friday) for advice.
Payments that are not made wholly and exclusively for the purposes of your trade may attract relief under Gift Aid. Gift Aid is explained on page 3. Relief may be given for donations of money if the conditions on the amount of any benefit received in return are met.
Because sponsorship is a taxable activity, unless your business, as the sponsor, receives nothing more than an acknowledgement, a VAT registered charity must account for standard rate VAT on any sponsorship income received. Your business, as the sponsor of the charity, can reclaim the VAT if the sponsorship is for business purposes and you make taxable supplies (i.e. standard, reduced or zero rated). If your business makes exempt supplies, it may have to restrict the amount of VAT it recovers in accordance with the normal rules of VAT. If your business is considering this course, you should contact HMRC Charities on 0845 302 0203 (8am to 5pm Monday to Friday) or consult the charities pages of guidance at www.hmrc.gov.uk (VAT notice 701/41 – Sponsorship) before proceeding.
Giving of Shares or Land
Your business can claim tax relief on that donation. It applies to:
Shares and securities listed or dealt in on the London Stock Exchange and other recognised exchanges, or recognised foreign stock exchanges (your business cannot donate its own shares). Refer to www.hmrc.gov.uk/charities/ for more detail.
Units in an authorised unit trust.
Shares in a UK open-ended investment company.
Holdings in certain foreign collective investment schemes.
A qualifying interest in land.
If in doubt, HM Revenue & Customs can help you decide whether your gift will qualify for relief. You should contact HMRC Charities on 0845 302 0203 (8am to 5pm Monday to Friday).
You can claim tax relief equal to the market value of the shares on the day you make the gift, together with any associated costs such as brokers’ fees. Tax relief can also be claimed on shares that are sold to charity at less than their market value. In this case, you can claim a deduction for the difference between the full market value and the proceeds you receive from the charity. In both cases, you should also take off the value of any benefit you receive from the charity in return for your gift.
If your business gives real property (land or buildings) in the UK to charity, you are entitled to claim tax relief based on the value of the property. The charity will give you a Certificate when you make a gift of real property.
How to claim the tax relief
If your business is a company you can claim relief by entering the amount in the “Charges Paid” box of your Corporation Tax Self Assessment return for the accounting period in which the gift was made. For partners or the self-employed, details of the gift should be entered on your Income Tax Self-Assessment return for the tax year in which the gift was made.
In addition, any gain on a gift of property to a UK charity is exempt from capital gains tax. Donors are entitled to claim a deduction for the full market value of the property donated less anything received in return.