Tax Benefits of Charitable Giving

Have you been thinking about how your business could have a greater impact in your local community, help those in need and benefit the environment? Charitable giving can be more than just monetary donations, and with the tax reliefs available the cost of your generosity may be less than you think.
In this article, our tax consultant, Nick Giles, will talk you through how your business can make a positive impact while reaping the rewards of these tax advantages.

1. Corporate Gift Aid

When a company donates money to a charity or community amateur sports club (CASC), the value of its donations can be deducted from the business's total profits, which reduces its corporation tax bill.

To qualify as a charitable donation, the donation must be a genuine gift with the company receiving no benefit in return and it must be made to a UK registered charity (with a few exceptions for EU charities that asserted their charitable status with HMRC under the Brexit transitional provisions).

Donations don't have to take the form of money to be eligible for corporate gift aid relief. Your business can also claim a deduction for the value of assets it gifts to charity.

This can include:

• Surplus stock which a charity may be able to find a better use for.
• Items of plant and machinery that you use in your business, such as computers or furniture which a charity could use.
• Investments, such as land, property or shares.

These gifts are eligible for a number of tax reliefs.

2. Corporation Tax Relief

When donating surplus stock or investments to charity your company can claim tax relief on the cost of the assets it has donated.

3. Capital Allowances

You can still claim full capital allowances on the cost of plant and machinery used in your business that you give to charity.

4. Capital Gains Tax Relief

When your company gifts investment to a charity it can not only deduct the cost of the investment from it's profits (but not for CASCs) but additionally it does not need to pay tax on any capital gain if the investment is worth more than it originally cost. This can be an incredibly tax efficient way to gift to charity. As an example, if a company wanted to make a donation of £20,000 to charity and it had some shares listed on the stock market worth £20,000 that had originally cost £10,000, the company would trigger a tax liability of £1,900 (at 19% on the £10,000 gain) if it sold the shares. This would then leave it with £18,100 to donate to charity. However, it could gift the shares to a charity and the charity could then sell the shares, which would be exempt from tax on the charity's side, leaving the charity with the full £20,000 value donated.

5. VAT Relief

Items of trading stock that are gifted to charity still need to be accounted for in terms of VAT but the gift can be zero-rated, meaning no VAT needs to be charged. As the gift is still accounted for VAT purposes, the VAT incurred on the purchase of the stock can still be reclaimed by the company, which effectively makes the gift 1/6 cheaper.

To find out more or how we can help you and your business, contact the Page Kirk Team on 0115 955 5500 or email enquiries@pagekirk.co.uk.