Contractors' Questions: How can my limited company donate to charity?

Contractor’s Question: I’ve read about what I need to do if my limited company wants to make a political donation, but it’s charity which begins at home, and not politics! So how can my limited company make a charitable donation?

Expert’s Answer: The good news is that tax relief is available to companies for qualifying charitable donations, albeit in specific circumstances.

What is the definition of a charity?

The donation must be made to a ‘charity’ which is defined as one of the following:

•           a charity that meets specified conditions

•           Trustees of the National Heritage Memorial Fund

•           the Historic Buildings and Monuments Commission for England

•           a scientific research organisation

•           clubs registered as community amateur sports clubs

To be allowable for tax, a cash donation must be of money and there must be no repayment conditions (with a few exceptions).

What's not allowable

The company making the donation must not itself be a charity. Payments are not allowable if they are conditional on arrangements involving the acquisition of property by the charity or a person associated with the charity.

Donations are not allowable if the donor receives benefits over specified limits. In practice, this means that such things as branded pens and stationery given to donors do not affect the tax treatment of the gift. For gifts under £100, the maximum value of benefits received by the donor is 25% of the value of the gift. For gifts over £100, the maximum value of benefit is £25 plus 5% of the excess over £100.

The 'wholly and exclusively' test to the rescue

Generally, where companies sponsor events, such as local sporting events, the payments will not usually be eligible for charitable donations relief because of the restrictions on receipt of benefits as described above.

However, tax relief may instead be available under the general principle that they are made “wholly and exclusively” for the purpose of the trade. For example, the donee may allow the company to advertise in the event programme or on a banner, or add links to the company’s website from the event website. In such a circumstance, the payment would be allowable for tax purposes.

Get tailored help

Nonetheless, in all circumstances touched on in this answer, and before you make any firm decisions, we’d recommend you take independent, professional advice tailored to both your situation and your charity of choice.

The expert was Tim Stovold, head of tax at chartered accountancy firm Moore Kingston Smith.

Thursday 20th May 2021
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Written by Tim Stovold

Tim is well known for his friendly and approachable manner. He takes a close interest in his clients’ business and background and uses plain English to explain complex tax issues in an understandable, non-intimidating way. Tim has extensive experience of dealing with the tax authorities and is recognised for his ability to handle the difficult elements of tax investigations devising innovative ways to solve problems.

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