Charitable Donations

At some point you may wish to make a Charitable Donation, either personally or via your Company. Gifts of money to UK charities by limited companies are made before tax is deducted out of gross profits, so no Gift Aid declaration is necessary. If you pay UK tax on your personal income and then make a Gift Aid donation, UK charities can claim back Basic Rate Tax relating to that donation directly from HMRC.

If you make a charitable donation through your limited company, and it is an allowable expense for tax purposes, the Corporation Tax due will be reduced by 19% of the total donation. You should retain documentation from the charity to support the payment made.

There are some conditions to ensuring that charitable donations are allowable expenses for tax purposes. For instance, charitable contributions can’t be used to create or increase your company’s trading losses, and they can’t be carried over from year to year.

Personal Gifts to Charities - Advantages of making a Gift Aid payment

Your gift is worth more to the charity than your initial donation. If you pay UK tax on your income, you can make a Gift Aid donation as an individual that will allow UK charities to claim back Basic Rate Tax relating to that amount, direct from HMRC. Relief has now been extended in respect of donations to organisations equivalent to UK charities in the EU, Norway or Iceland, so for every £10 you give; the charity will actually receive £12.50 (tax year 2018/19).

If you are 65 or older, your gross Gift Aid donations are deducted from your taxable income when calculating age related allowances.

You can include Gift Aid donations on your tax credit application. As the donations reduce your taxable income you may be awarded more tax credits.

You can save tax. If you pay Higher Rate Tax you can claim back the difference between the basic rate of tax and the higher rate on all gross Gift Aid donations made each tax year. Therefore if you gift £10 to a charity, you effectively make a gross gift of £12.50 (£10 given plus the tax already paid and claimed by the charity). But, if you pay tax at the higher rate (40%) you can also claim the difference between the tax at higher rate and basic rate on your gross gift i.e. (40 – 20) =20% x £12.50 = £2.50.

Making a Gift Aid donation

In order for your gift to qualify as a Gift Aid donation you must make a declaration to the charity that you:

  • want your gift treated as a Gift Aid donation;
  • have paid sufficient UK tax for the year your donation is made, to cover the Basic Rate Tax the charity will reclaim;
  • your declaration must include your full name and home address (or at the very least your house number and postcode).

Your chosen charity can usually supply you with a form on which to make this declaration. Alternatively they may read you a statement and ask you to confirm the details they are recording on your behalf (e.g., when making a telephone appeal).

You need to make a separate declaration for each charity, but one declaration can usually cover all gifts you make to that charity now and in the future. You should keep a record of the total amount of your Gift Aid donations for each tax year (a tax year runs from 6 April to 5 April).

Notifying HMRC of the Gift Aid payments made

If you complete a self-assessment tax return, make sure you include the gross total of all Gift Aid donations made in the year, or advise your accountant completing the tax return to do so. Higher Rate Tax relief can be offset against your tax due for the current tax year or carried back to the previous year of assessment. The election can be made for any or all Gift Aid payments made between the end of the tax year and the following 31 January, as long as your tax return has not already been submitted.

If you pay Higher Rate Tax but do not complete a self-assessment return, you can claim the additional relief by writing to your tax office giving details of your total Gift Aid donations.

Gifts to Charities made by Companies

Gifts of money to charities by limited companies are made before tax is deducted, out of gross profits. If the donation is an allowable expense, the corporation tax due will be reduced by 19% of the total donation.

Companies can claim tax relief for donations to UK charities and equivalent charities in the EU, Norway and Iceland, as a charge against income in the Corporation Tax computation prepared at the end of the financial year. You should notify your accountant of all donations made to ensure the correct tax relief is calculated and you should retain documentation from the charity to support the payment made.

Tax relief can only be claimed for the accounting period during which the payment is made and it is restricted to the amount of corporation tax profit available for that period. A donation to a charity cannot be used to create a loss for Corporation Tax purposes.


Still have a question?

If you require further information on any of these topics, please feel free to call one of our specialist advisors on: 0800 230 0213 or click here to arrange a call back.

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