‘Tis the season for generosity…

Whilst of course we do not give to receive, a warm fluffy feeling is not all that is on offer when making charitable donations.

Whether you are an individual UK taxpayer or a UK trading company, there is tax relief available.

Your limited company can reduce its total business profits by the value of your qualifying donations. The company can give:

• Money
• Equipment or trading stock
• Land, property, or shares in another company
• Employees (on secondment)

There are some payments that do not qualify, including loans to be repaid by the charity, distribution of company profits (i.e. dividends) and, payments made on the condition that the charity will buy property from the company (or anyone connected with it).

Donations made by an individual can be considered when calculating the individual’s Income Tax charge.

If you are a UK taxpayer, any donations made under Gift Aid are considered to be paid from your income after the basic rate of tax has been deducted. The charity then claims this tax deduction from HMRC.

If you are a higher or additional rate taxpayer, there is a disparity between the basic rate tax the charity can claim from HMRC and the tax rate payable by you.

You are able to claim the difference from HMRC. The basic principle is that your basic rate tax band is extended to deal with the difference in tax rate.

Related developments:

The Spring Budget 2023 included measures to refocus the generosity of UK companies and individuals towards UK registered charities. These changes are effective from April 2024 where charities have asserted their status for charitable tax reliefs with HMRC before 15 March 2023.

For individuals, these measures will mean the removal of Income Tax reliefs on donations to an EU or EEA charity. For companies, these changes will mean the removal of Corporation Tax relief on company donations to an EU or EEA charity.

Some final thoughts:

There are economic pressures in the UK, for both businesses and individuals, with disposable income being squeezed. Subsequently, charities are being impacted.

In September 2023, a survey by the Charities Aid foundation of more than 600 charities found that 41% say they cannot help anyone else and 12% are turning people away.

It also found that around 59% of charities say that demand has increased compared to a year ago, with nearly 31% saying it has increased substantially.

These statistics are quite staggering. The vast majority of charities are reliant on donations. If you or your business can incorporate some charity spend in your budgeting, it is important to be aware of the tax incentives available.

Whilst we are waiting to hear sleigh bells in the snow, perhaps it would be worthwhile to consider if Dad does need those extra pair of socks, maybe a charitable donation will provide more fulfilment.