Supporting charities that matter to you can be one of the rewarding aspects of running a successful business. However, it’s crucial to keep accurate records of your donations, stay informed with HM Revenue & Customs (HMRC) regulations, and ensure compliance.
Here’s a brief overview of the rules for corporate charitable donations.
Be aware of certain restrictions regarding the tax deductibility of donations to charities and community amateur sports clubs.
- For cash donations, there are limits on the value of any return benefits, such as tickets for anyone connected to your company, including close relatives.
For donations up to £1,000, the maximum benefit value is the lesser of 25% of the donation or £25.
For donations over £1,000, the limit is 5% of the donation, up to a maximum of £2,500.
- Charity sponsorship costs are deductible as standard business expenses. To qualify, the charity must:
- Publicly endorse your company’s products or services
- Allow your company to use their logo in your printed materials
- Permit you to sell your goods or services at their events or premises
- Include links from their website to yours.
- If you allocate employees to work temporarily for a charity, these costs are deductible as regular business expenses. Donations of previously used business equipment should be claimed as capital allowances.
- The maximum deductible amount should not reduce taxable profits below zero. Excess costs cannot create a trading loss or be carried forward to future periods.
- For VAT-registered companies, VAT must be accounted for on donated equipment and goods. The donation can be zero-rated if it consists of items the charity can sell, hire, or export.
How can an accountant assist with this?
Generally, donations to charities and community amateur sports clubs can be deducted for corporation tax purposes.
The method of reflecting these costs in the company’s tax return varies based on the type of donation. The total claim may be limited if it results in a trading loss or increases an existing loss.
Proper VAT treatment of donated items is essential.
Seeking Guidance on Charitable Donations
We can provide advice on the appropriate accounting and tax treatments for your charitable contributions. We’ll ensure the tax treatment is accurate and everything is correctly documented in your company records.
Contact us for clarification on any aspects of charitable giving you’re uncertain about.