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Giving is good for your health & your bank account

The unfortunate need people who will be kind to them; the prosperous need people to be kind to  –  Aristotle

Studies have shown that giving makes you happier and you’ll live longer.  The good news is that you can also get tax relief (spoken like a true accountant). Giving really is good for your health and your bank account. How you get that relief is down to the legal status of the donor.

If you trade as a limited company, you might decide to make a corporate donation as well as, or instead of, a personal one. If the business is yours, this would effectively come from your pre-tax and pre-NIC income, potentially making it a sound way financially for business owners to donate. A couple of things to bear in mind though.

tax relief for charitable donations

What makes a good donation?

Firstly, the essence of a charitable donation is that it is something you do without receiving anything in return, so no tickets to a sports match or social event. Secondly, charitable donations are not normally a trading expense. You get relief by setting them against TOTAL profits rather than trading profits.  Also you can’t create a loss from a profit and you can’t make an existing loss bigger. The only time when you may be able to claim the donation as a trading expense is when it’s a small and local charity. I appreciate the distinction may seem arbitrary but in terms of where the expense needs to go on your corporation tax return and whether you get relief, it’s definitely not.

If you are a sole trader or partnership, charitable donations can never be a business expense so that’s not how you would get tax relief. You would declare the donation on your personal tax return (as for all private donors). When you make the donation, you will asked to make a Gift Aid declaration. The charity then gets to reclaim 25% of your donation but you must make sure that you pay enough tax to cover the claim otherwise HMRC WILL RECOVER IT DIRECTLY FROM YOU.

How does it work?

For example, if you want to donate £100, you give them £80 and the charity reclaims the £20. You must have paid at least £20 in tax otherwise you’ll be responsible for paying that back to HMRC.

If you’re a higher rate taxpayer you can get more relief in your tax return or by asking HMRC to adjust your PAYE tax code.  There are a couple of other ways that making charitable donations can bring down your overall tax position: if your income is on the borderline for the High Income Child Benefit Charge or the loss of your personal allowance at the £100K threshold, you can also make use of those donations to bring your adjusted income down and reduce the amount of child benefit you repay, or the amount of personal allowance you lose.

One last condition – your donation must be made to a UK registered charity or CASC. You can check this here:

Composure puts its money where its mouth is

We think that people who do good things deserve good things in return which is why we never charge our clients for work done to claim relief for charitable donations in their personal tax returns. We also donate £3 to our chosen charity Little LifeSavers as a thank you to each client who takes the time to complete a happiness survey.

Would you like to work with an accountant that shares your values as well as making sure you benefit from the full amount of tax relief the law allows? If so, please let us know when to call you: Time to find a new accountant or get in touch using our online form

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