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Gift aid for business

 

Highlights

  • Companies can make a charitable donation through Gift Aid simply by giving the full amount to charity and deducting the amount as a ‘charge’ when working out profits for corporation tax purposes.
  • Gift Aid donations from the self-employed (sole traders) are treated in the same way as Gift Aid by individuals. 
  • Gift Aid donations received from businesses that are run as partnerships are treated as donations of equal amount from the individual partners, unless the partnership decides to split them in different proportions. In Scotland, where partnerships have a legal personality, a partner may make a Gift Aid declaration on behalf of the partnership.
Read more about Gift aid for business

Under the gift aid scheme businesses can obtain tax relief when they give money, whether as a one-off or a regular payment. It applies to donations of money of any amount to UK charities. The HM Revenue & Customs (HMRC) website provides details of tax incentives for corporate giving.

The way you receive tax relief via the Gift Aid Scheme depends on whether the business is a company, a sole trader or a partnership.

For companies

To make a charitable donation through Gift Aid, a company simply gives the full amount to charity and deducts the amount as a ‘charge’ when working out profits for corporation tax purposes.

Unlike Gift Aid for individuals, the charity does not reclaim any tax on the gift, and because gifts of money by companies are made before tax is deducted (i.e., out of gross income or profits), no Gift Aid declaration is required.

Charitable donations cannot be used to create or add to a company’s trading losses, nor can excess charitable donations be carried forward or back although they may be surrendered as group relief. In this case you should contact your accountant or the HMRC office that deals with your tax affairs for further guidance.

For sole traders

Gift Aid donations from the self-employed (sole traders) are treated in the same way as Gift Aid by individuals. The donation will be treated as paid out of taxed income and the charity can reclaim basic rate tax on it from HMRC. The trader will be required to complete a Gift Aid declaration for the donation to the charity. A higher-rate taxpayer can obtain tax relief on the difference between the basic and the higher-rate of tax on the gross amount of the gift on his tax return. For more information, see the chapter on Gift Aid for individuals.

For partners

Gift Aid donations received from businesses that are run as partnerships are treated as donations of equal amount from the individual partners, unless the partnership decides to split them in different proportions.

The gift is paid out of after-tax income, and the charity reclaims the basic rate tax from HMRC. Higher-rate tax payers can claim tax relief on the difference between the higher rate and the basic rate of tax on the gross amount of their share of the gift.

Unless one partner has power under the partnership agreement to make a Gift Aid declaration on behalf of the partnership, a Gift Aid declaration will be required from each partner. This can be done on one form provided it includes each partner’s details.

In Scotland, where partnerships have a legal personality, a partner may make a Gift Aid declaration on behalf of the partnership; showing the partnership’s name and address.

Donor benefits

Some charities, particularly those which have membership schemes, like to acknowledge their donations with some small gift in return, such as a book. This is acceptable as long as whatever the charity gives (or anyone connected with the donor) in return for the donation is within the limits below.

A person is connected with the donor if that person is:

  • The wife or husband
  • A relative: brother, sister, ancestor (e.g., mother) or lineal descendant (e.g., grandson)
  • The wife or husband of a relative
  • A company under the control of the donor, or under control of connected persons

Literature that describes the work of the charity which is provided as a gift in return for a donation is not regarded as a benefit for Gift Aid purposes and so should not be taken into account in the limits for gifts detailed below.

The benefit to the donor (or anyone connected to them) from each charity must be within the limits below.

The limits are:

 

 

Amount of donation

Maximum value of benefits

£0 - £100

25% of the donation

£101 - £1,000

£25

£1,001+

Made before 6 April 2011

5% of the donation (up to a maximum of £500)

Made on or after 6 April 2011

5% of the donation (up to a maximum of £2,500)

As well as passing the relevant value test, the value of benefits received by the same donor in one tax year as a result of making more than one donation to the same charity in that tax year must not exceed:

  • £500 for donations made between 6 April 2007 and 5 April 2011.
  • £2,500 for donations made on or after 6 April 2011.

Other tax relief

Companies can also claim tax relief on employee secondments and sponsorship payments. For example, when seconding employees to a charity on a temporary basis, they can claim relief for the employment costs they continue to incur. Additionally, trading companies, sole traders or trading partnerships can also claim relief for sponsorship payments to a charity, provided that the payments are made wholly and exclusively for the purposes of your trade and are not of a capital nature.

Please also see chapter on ‘Gifts of assets’ for information about other charitable tax reliefs available to businesses.

 

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Recommended resources

A version of this article, written by Philanthropy UK, was published in a previous edition of A Guide to Giving (2008).

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