If you are a small business owner who wants to donate to charity you may be wondering whether it’s best to do it via your company or as an individual.

Generally speaking at Holy Brook we would encourage our limited company clients to consider donating to a charity or a community amatuer sports group. However, there are some caveats:

Why donate to charity via your company?

Most of us already know that donating to charity is a good thing: the most obvious benefit is that by donating to a registered charity via your company you are helping that charity and we shouldn’t lose sight of that. However, if you are trying to decide whether to make that a personal or company donation there a range of other considerations for both the donor and the recipient charity.

Tax impact

Donating via your company is also an extremely tax-efficient way to donate. Donations will come off your profit and therefore can reduce your corporation tax if you have a taxable profit (you can’t use a charity donation to increase a taxable loss). Discuss this with your accountant, but simply put this will save the company whatever it’s marginal rate of corporation tax is – this could be 19%, 25% or even in some circumstances 26.5% of the cost of the donation.

If you have goods or stock that you wish to donate to charity, again this is extremely effective as a donation as long as the charity can use the items – make sure this is an item that they actually want and can use. The cost of the purchase will be able to be included in your annual accounts

You can also second an employee to a charity, and continue to pay them through PAYE as normal. Make sure you clearly lay out the time that is spent by the employee on the charity. The charity will also need this information for their accounts as a donation “in kind”.

You can also give to charity via sponsoring events, which means that your company can get something in return, such as publicity. In this case it may be more correct treat the sponsorship payments as an expense, similar to you might for any other marketing cost.

Other benefits

You can publicise your charitable giving and it is good for your PR, so consider choosing charities that link in some way to your organisation or your own personal passions. Some companies chose to work with a charity of the year to boost the impact both for themselves and the charity, which is what we do at Holy Brook

Your employees may be motivated to get involved and you might want to consider matching their giving or supporting them in fundraising – for example one of our team recently ran the Reading Half Marathon to raise money for The Duchess of Kent, Sue Ryder Hospice, which is our chosen charity and Holy Brook donated by matching her fundraising.

Other issues to consider

There is no gift aid for a charity to reclaim on donations from a company. This makes sense as of course no-one has paid income tax on this. However, it may be worth considering increasing the amount you donate to reflect this. Otherwise you are effectively making a tax saving on your donation but not sharing that benefit with your charity.

To be considered a genuine donation there are restrictions on the value of benefits you can receive from the charity, and you should avoid attaching any conditions on the gift, unless it’s a sponsorship, in which case it may be a marketing expense.

Note that this blog post is focused on charity commission – if your business operates as a sole trader you can still consider donating to charity, but this is treated as a personal donation, so there is only a tax benefit to you if you are a higher rate tax payer.

Summary

It’s a great idea to give to charity via your limited company. Indeed as a business owner it can often be seen as the most effective method of charitable giving. If you are at all unsure discuss with your accountant, and of course consider the timing and how it relates to your financial year end.