It is important to understand the rules surrounding payments as HMRC have a strict set of guidelines which must be followed.
Charitable donations
There are two main ways in which you can donate to a charity, either personally or via your company and each method could be advantageous from a tax perspective, depending on your circumstances.
Personal donations
These are donations made to a charity from personal funds and as such attract personal tax relief if they are donated under the ‘Gift Aid’ rules. The charity will be able to reclaim basic rate tax from the government so that the net contribution made personally turns into a gross contribution for the charity i.e. you contribute £80 to charity from personal funds, the charity then reclaims £20 (£80 divided by 80 multiplied by 100) and as such the £80 donation is turned into £100 for the charity.
Your basic rate band will also be extended by the grossed-up charity donation (£100 in this example) so if you are a higher rate taxpayer, tax relief is given in full i.e. up to the top rate of tax you pay.
To ensure that the charity can reclaim the basic rate tax, you have to certify under the Gift Aid rules that you have paid sufficient tax to cover the tax the charity will be reclaiming. If you have not paid enough tax to cover the amount of tax the charity is reclaiming, then you will owe the amount of the difference in tax to HMRC; this will usually be applied on your self-assessment tax return when reporting the amount of tax payable and the charity donations you have made.
If making donations via digital platforms, you can only claim Gift Aid on donations that you have made, not on donations that you have collected in person and then submitted via the digital platform.
Cryptoassets are not considered to be money by HMRC and, whilst donations of cryptoassets can be made, they are not eligible for Gift Aid relief. Monies received from converting cryptoassets into currency are however generally eligible for Gift Aid, however you should consider the Capital Gains Tax implications to doing so.
Company donations
These are contributions made to a charity from company funds and as such gain relief from Corporation Tax, assuming they are ‘wholly and exclusively’ for the purpose of trade. You need to ensure that the charity is aware that the donation is from the company rather than an individual and it should be paid direct from the company account.
To ensure that full Corporation Tax relief is available, the charity donations should not cause the company to make a tax loss, as the gift aid donations will then be ‘lost’ for Corporation Tax purposes i.e. you cannot carry back/forward tax losses caused by excess gift aid donations. You will also need to ensure that any benefit to the company or connected person (directors, director’s spouse, director’s family etc.) is within set guidelines as per the below table:
| Donation Value | Benefit Allowed |
| £0 – £100 | Up to 25% of the donation value |
| £101 and above | £25 of £100, plus 5% of £101 upwards to a total benefit value of £2,500 |
Certain donations will still not qualify for Corporation Tax relief even if the above conditions are met, broadly speaking they are any donation/gift that comes with a condition about repayment or an arrangement to purchase property from the donor or connected person.
Sponsorship for contractors
Sponsoring a charity or a Community Amateur Sports Club (CASC) is usually treated differently to donating to a charity, essentially as the expectation is that your company will receive something in return. For example, you may wish to sponsor a local football club and in return have your company logo displayed on the club’s kit.
Provided that these meet the criteria for being ‘wholly and exclusively’ for business purposes then generally speaking the sponsorship costs would be treated as advertising rather than as a donation and be an allowable expense for Corporation Tax relief. Essentially this means that there should be no duality of purpose and the benefits to the company for providing the sponsorship should be evident and tangible.
An exception to this is where there is no expectation of receiving anything in return, i.e. the company does not wish to be recognised for its support. In this instance the sponsorship would be treated as a charitable donation.
HMRC will often consider that a sponsorship had a non-business purpose where any of the following applies:
- If the person being sponsored is a personal friend or relative of any of the directors or business proprietor
- If the activity sponsored is one in which the director or proprietor has a personal involvement which predates the sponsorship
- If the payment is requested by the recipient without any negotiation of the consideration
- No clear commercial benefit to the sponsorship, such as local businesses sponsoring events taking place in the other parts of the country
Is it better to donate from the company or personally?
Generally, the tax savings will only differ by around 1%, so unless you are donating a significant amount, the tax efficiencies should be similar. One of our specialist accounts will be able to advise you as to the best way to donate in your circumstances.
Need advice around charitable compliance?
If you want to give a charitable donation through your limited company or sponsor an individual or event, it’s important to understand how to account for the related expenditure correctly and ensure that you comply with HMRC’s guidelines.
The Caroola team has over twenty years of experience helping small businesses, contractors and independent professionals with all of their financial needs. For more advice around, charity and sponsorship, please get in touch.