It’s part of our ethos to give generously to local charities and to support our team members in their own charitable endeavours. 

We also sponsor events, such as a recent evening raising money for Smart Works, a charity that gives unemployed women coaching, clothing and confidence to get back in the work force. 

We want to encourage all businesses and business owners to give back in some way, because it’s the right thing to do. It’s important that if you do give, that you record your donations, especially if you want to benefit from tax relief on your donations or treat any sponsorship as a business expense. Here’s what you need to know.

HMRC rules on limited companies donating to charity

It’s crucial that all UK businesses record their charitable donations and follow the rules set by HMRC.  Donations can be made in various forms such as cash, goods and services, employees on secondment, and even shares in a limited company.

When a limited company donates to a registered charity, these donations can be claimed as a ‘Chargeable Gain’ for Corporation Tax purposes. This means the value of the donation can be deducted from the total profits of the company before tax. However, there has to be no Benefit in Return. This means that the company can’t receive any substantial benefit in return for the donation. 

Sole traders and partnerships can donate too!  Donations made by individuals to charities, including community amateur sports clubs (CASCs), are tax free too. 

You cannot claim tax relief on some donations. This includes:

• Loans that will be repaid by the charity
• Donations made on the condition that the charity will buy property from your company or anyone connected with it
• Donations that are a distribution of company profits (eg dividends)

What is considered a donation and what is considered sponsorship?

If a company or individual is given something in return for their donation, such as tickets to an event, it must be below a certain value to be considered for tax relief. This is HMRCs handy table:

Donation amount	Maximum value of benefit
Up to £100	25% of the donation
£101 – £1,000	£25
£1,001 and over	5% of the donation (up to a maximum of £2,500)

This applies to benefits given to any person or company connected with your company, including close relatives.

If you get a benefit that’s related to the company your donation qualifies as a sponsorship payment.

Sponsorships

Sponsorship payments can still be deducted from your business profits before you pay tax by treating them as business expenses.

Sponsorships will qualify as a business expenses if the charity:

• publicly supports your products or services
• allows you to use their logo in your own printed material
• allows you to sell your goods or services at their event or premises
• links from their website to yours

If you’re unsure whether a charity payment qualifies as a sponsorship payment or a donation, contact the charities helpline.

When you make a donation, you need to keep records of your generosity

To claim Corporation Tax relief, you need to document the value of your donation. This means keeping receipts and proof of your donation issued by the charity.

If you donate cash, set up the charith or CASC as a new vendor. Record this donation in the charity’s name just as you would for any other client.

If you donate gifts in kind or shares, record how these are valued

1. Value your donation – establish the fair market value, in other words, what someone would be willing to pay for that work/goods in the open market.
2. Create an invoice to the charity or CASC (sports club). Definite this as a charitable donation
3. Issue the charity with a credit note. This will cancel out the invoice and ensure the value is correctly logged. 

Update your records regularly throughout the year so it’s all logged when it’s time to fill in your Corporation Tax return (donations) or business expenses (sponsorship).

Regardless of whether you made a donation of goods, services or cash, you should request an acknowledgment letter from the charity organisation. 

• Scan invoices/documents and receipts and keep them in a charity folder 
• If you use spreadsheets, create one specifically for charitable donations

Include the amount donated to charity in the ‘Charitable donations’ section of your corporation tax return to claim your relief.

Remember, if you give your team days off to work for a charity this counts too!

Giving your employees a day (or two) off to do work for a charity is often really appreciated by employees and charities alike. The day could be spent as a team building exercise working with a charity local to your business or could be used by your employee to work with a charity closer to their own heart. Remember to record these days and their value, so you can claim tax relief at the end of the financial year.

You can learn more about donating to charity on the .gov website.