Donating to charity is a powerful way to support causes you care about. As a limited company owner, you also have a unique opportunity to do this through your business in a tax-efficient way.
In this article, we’ll explore how charitable donations work from a company’s perspective, what the tax implications are, and how to make sure you keep on the right side of HMRC.
What types of donations can my company make to charity?
There are many ways your limited company can donate to charity, including:
Cash donations
Sponsorship payments
Donations of equipment or trading stock
Seconding employees to work for a charity
Land, property, or shares
For most of our readers, simple cash donations are the most straightforward and relevant. The others may still apply, of course, but are most likely to apply to larger companies.
Who can you donate to?
For a charitable donation to be eligible for tax relief, it must be made to a registered charity or Community Amateur Sports Club (CASC). Always verify the organisation’s status before contributing.
Unlike individual charitable donations (which can be claimed via the Gift Aid process), limited companies receive tax relief through Corporation Tax.
How It Works:
Charitable donations are considered a business expense and can be deducted from your company’s total profits before Corporation Tax is calculated.
This means that, in effect, the company pays less Corporation Tax.
Example: If your company makes £50,000 in profit and makes a £1,000 donation to a registered charity, the taxable profit becomes £49,000. If your company pays Corporation Tax at 25%, that equates to a saving of £250.
While donating to a charity via your company is relatively straightforward, there are a few rules to be aware of:
1. You should not receive benefits in return
Your company (or its directors or employees) must not receive anything in return for the donation, except for modest acknowledgements such as a thank-you note or logo placement.
If your company gets more than a minimal benefit, it may be considered a sponsorship (see below), which is treated differently for tax purposes.
2. Maintain accurate records of your donations
Make sure you keep records of the following:
The donation amount
The recipient charity
The date of donation
Any relevant bank records and receipts
Your accountant will be grateful, and these details will be necessary if HMRC ever raises a query.
3. Timing matters
The donation must be made within the accounting period for which you want to claim it. You can’t carry it forward to a different tax year.
What About Sponsorship?
If your company receives publicity or marketing benefits in return for a payment to a charity, it will be considered a sponsorship, rather than a donation.
In such cases, the payments can still be deducted as a business expense, but fall under standard trading expenses rather than charitable donations.
Equipment or stock (e.g., a contractor donating surplus IT equipment)
Employee time (e.g., seconding a staff member to a charity temporarily)
These donations can also be tax-efficient, but the rules are more complex. For instance, donating trading stock doesn’t incur VAT, and you can still deduct the cost when calculating taxable profits.
Choose a registered charity (verify it on the Charity Commission website).
Make the payment from the company’s bank account.
Clearly label the transaction in your company’s accounts (e.g. within FreeAgent).
Talk to your accountant before they prepare your company’s annual accounts, if necessary.
Your company can claim the deduction on its Corporation Tax return (CT600).
Final thoughts
Making a charitable donation through your company is not only a generous act but also a tax-efficient way to support worthy causes.
As always, please consult your accountant if you have any questions about donating to charity, especially if you’re considering a donation method other than cash.
