Making company charitable donations: the rules

Are you donating money or equipment to a charitable cause? Make sure you’re using the right tax treatment and keeping all the correct records.

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Making company charitable donations: the rules
Making company charitable donations the rules

Helping to fund the causes that are close to your heart is one of the positive side effects of running a successful business. But you also need to keep track of what you’re donating, keep HM Revenue & Customs (HMRC) informed and make sure you’re ticking the compliance boxes.

Here’s a quick summary of the rules for companies making charitable donations.

There are a few restrictions you need to be aware of regarding the tax-deductibility of donations to charities and community amateur sports clubs.

  • For cash donations, there’s a limit on the value of anything you get in return – for example, tickets given to any person or company connected with a company, including close relatives.
    • For donations up to £1,000, the maximum value of benefit is the lower of 25% and £25.
    • For donations above £1,000 the limit is 5% of the donation, capped at £2,500.
  • With charity sponsorship, the costs are deductible as a normal business expense. For the sponsorship to qualify, the charity must:
    • Publicly support the company's goods or services
    • Allow the company to use their logo in the company’s printed material
    • Permit the company to sell their goods or services at the charity's events or premises
    • Have links from their website to the company's website.
  • If you second any of your employees to work for a charity, the costs are deducted as normal business expenses. Donations of equipment previously used in your business should be claimed as capital allowances.
  • The maximum amount that can be deducted is sufficient to reduce taxable profits to zero. If the costs are more than that, you can’t declare a trading loss or carry any part of the expenditure forward to claim against future periods.
  • If your company is VAT registered, you need to account for VAT on any equipment and other goods that you donate. However, the donation can be zero-rated if it takes the form of items that the charity can sell, hire out or export.

How can my accountant help me with this?

Under normal circumstances, the cost of donations to charities and community amateur sports clubs can be deducted for corporation tax purposes.

The way in which the cost is reflected in the company’s tax return will differ, depending on the form of the donation being made. The total claimed can be restricted if it results in a trading loss, or increases an existing trading loss.

Care must be taken to ensure the correct VAT treatment of items donated.

Talk to us about making a charitable donation

We can advise on the correct accounting and tax treatment for your charitable donations. We’ll make sure the tax treatment is right and everything is properly reflected in the company records.

Call us to talk about any areas of charitable giving that you’re unclear on.

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