Gifting to charity by individuals and companies

With the recent distressing disaster in the Philippines we have received a number of enquiries from clients wanting to make contributions.  Clients have been asking us the best way to go about this to maximise the amount they can give to charity.  We have therefore pulled together a recap of the very important Gift Aid rules for individuals, and also included details on how companies can make charitable contributions too.

Personal gifts -

the familiar Gift Aid rules apply here. For a donation from a UK taxpayer the charity is able to recover from HMRC the basic tax the donor has paid on the income. So for a gift of £80, the charity can reclaim £20 of the tax to make the gift worth £100 to them.

If you are a higher rate taxpayer further relief of £20 can be claimed on your tax return, so the effective cost to you of a £100 gift is £60. 

Remember to keep a record of the donation made for your return, and sign a Gift Aid declaration to confirm you have paid enough income tax at basic rate to cover the gift so the charity can reclaim the tax you suffered.

If your company operates as payroll giving scheme then you can have relief from income tax for your gifts at source, without the need to make a claim on your tax return. You will still pay National Insurance on the amount of salary gifted.

Own company -

It is possible to make gifts to charity direct from a company and receive corporation tax relief. However, the nature of the relief is quite different from the Gift Aid rules above.

Gifts by a company are made gross, so there is no further Gift Aid claimable by the charity. A gift of £100 from a company is worth £100 to the charity.  The donation can be offset as a charge on income in the company’s corporation tax computation at the end of the year, saving tax at the appropriate rate - usually 20% for a small company.

However care must be taken that the gift does not exceed the company’s taxable profits for the year as any excess can’t be carried forwards or backwards.  If there are not enough profits in the year of the gift some of the relief is wasted. If the company is loss making then there is no relief for the donation at all as it can’t increase a loss.    

Gifts of assets –

It is also possible to make gifts in kind, rather than of cash, whether you are an individual or company;

  • An individual can get income tax relief on gifts of certain shares or land and buildings to a charity
  • A company can get corporation tax on gifts of certain shares and land or buildings to a charity
  • A business (including sole trader, partnership or company) can also get tax relief of gifts of equipment used in the business, stock or the costs of seconding an employee to a charity.

If you are thinking of making a contribution, speak to us to make sure it is as tax efficient as possible so you can afford to maximise the benefit received by your chosen charity.

Helen Thornley, Tax Consultant



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