At this time of year many of us make donations to charity. When donating consider using Gift Aid so that the charity is able to maximise the value of your donation. If you are donating via a business the donation may be eligible for tax relief. This blog will advise on how to maximise your donation as an individual or a business – both for the charity and from a tax perspective.
Donating using Gift Aid means that the charity can claim an extra 25p for every £1 you give, and it will not cost you any extra. You will need to make a Gift Aid declaration for the charity to claim. If you do not have the form for this the charity you are donating to should be able to provide one.
Your donations will qualify as long as you are a UK taxpayer and donations are not more than four times what you have paid in tax that tax year. If you pay tax above the basic rate you can claim the difference between the rate you pay and the basic rate on your donation. You can claim this via your Self Assessment tax return or by contacting HMRC to amend your tax code.
Donating to charity using Gift Aid means the charity raise more funds without any additional cost to yourself.
The treatment of charitable payments differs depending on whether the business is incorporated or not. A Limited Company deducts the cost of the donations from its total business profits before paying tax. Small donations to a UK registered charity are normally treated as an allowable expense. The donation can be in the form of money, trading stock or equipment and even by the supply of staff on secondment to a qualifying organisation. The donations cannot be in the form of a loan or be conditional on the charity purchasing goods and/or services from the company. In some cases you may be able to receive something in return, such as tickets to an event but there are limits to the value of such benefits. If you are not incorporated the tax treatment depends on the way the donation is made. If Gift Aid is available or relief can be claimed through the individual’s tax return it should not be shown as a business expense.
Many are choosing now to leave gifts to charity in their will. Donating in your will may also decrease the estate’s liability for Inheritance Tax. Depending on the value of your donation in relation to your estate it will may be taken off the value of your estate before Inheritance Tax is calculated. However if 10% or more of your estate is left to charity it will reduce your Inheritance Tax rate. We would suggest speaking to a solicitor who specialises in will writing to ensure you will is correct and legal to prevent any problems for your next of kin.
Here at DNG we support individuals, businesses and charities with their accounting and taxation needs. Contact us today to see how we can help.
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