When you make charitable donations from your personal accounts or through your limited company, there are a  number of tax benefits you can claim.

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These include Gift Aid, the difference in higher rate tax payments and reduction of your corporation tax.

Personal Donations

Personal donations to a registered charity are tax free and will receive tax relief, usually through the Gift Aid provision.

Through Gift Aid, charities are able to claim an extra 25p for every £1 you donate, as long as your donation meets the below criteria:

  • you paid the same amount or more in income tax or capital gains tax in that year
  • you made a gift aid declaration that gives them permission to claim it
  • the recipient is a registered Charity

It is important to keep a record of all your charitable donations should you wish to have this taken off your taxable income.

Higher tax rate payers

If you pay tax at the higher or additional rate you will be able to claim back the difference between the rate you pay and the basic rate paid to a registered Charity. This can be done through your self assessment at the end of the tax year by asking HMRC to change your tax code.

For example, if you were to donate £200 to a recognised charity, you could claim Gift Aid to make your donation £250. As a higher tax rate payer, you pay 40% tax and can also claim back £50 (£250 x 20%).

Company Donations

If your limited company donates to a registered charity, your company will be liable to pay less Corporation Tax. The value of the donation from your company will be deducted against any profits before corporation tax is calculated.

Your company can only claim tax relief in the tax return for the accounting period in which the donation was made.

It will not be able to donate more than the company’s profit. If this does happen, your company will not be able to declare trading losses on the tax return or carry over any outstanding amounts to the next return.

A reduction in corporation tax is just one benefit you can gain from setting up a limited company. Contact us today to find out more about our limited company and fixed rate accounting services for contractors, sole-traders, startups and small businesses.