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Most small businesses will at some point donate money to charity.

You might also gift land, equipment, shares or even employees.

It is important to understand the repercussions of these donations on your tax obligations as a business.

Your business can deduct charitable deductions, but how these deductions are claimed depends very much on your business type and how you choose to donate.

Donating Personally

You can decide to donate to charity personally and get tax relief through your personal tax return.

If you want tax relief, there are 2 important conditions:

Firstly, donations must be made using the Gift Aid system.

Gift Aid allows charities to claim an extra 25p for every £1 given and if you choose to use this system you must fill in a gift aid declaration form.

Your donations will qualify as long as they’re not more than 4 times what you have paid in tax in that tax year (6 April to 5 April).

It is important to remember that you can claim tax relief on your self-assessment for donations made in the current tax year but only up to the date you send your return in.

The second condition is that you have to be in the higher rate tax band to claim tax relief. For 2022/23, this is £50,271 and above.

Donating as a Business

First things first, please retain all documentation relating to your charitable donations as a business. You’ll need them to claim tax relief.

As a limited company, as long as you make a profit, you can deduct your charitable donations from your taxable income.

Please not that you are not entitled to tax relief on donations you make where there is a condition the charity will buy something from your business.

Furthermore, your company will not receive any tax relief on any funds given to charity as a distribution of company profit (dividend).

Your business can claim full Capital Allowances on any equipment given to charity but you must have used the equipment in your business first.

Finally, quite a complex area is when you donate land or property.

The long and short of it is that if you donate land or property to charity, this will reduce your corporation tax bill in the same way as giving a financial donation.

Care must be taken to ensure legal ownership is documented, and records of transactions must be kept for at least six years.

If you have any questions contact us on 01728 687000.