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 we consider it is more efficient to give via your company. However, there are some caveats:
Why donate to charity via your company?
Let’s assume you already know that donating to charity is a good thing. The most obvious benefit is that by donating to a registered charity. This is an extremely tax efficient way to donate. Donations will come off your profit, and therefore reduce your corporation tax. Discuss this with your accountant, but simply put this will save approximately 19% 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. The cost will be able to be included in your annual accounts
You can also second an employee to a charity, and continue ot 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 treat the sponsorship payments as an expense, similar to you might for any other marketing cost.
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
Your employees may be motivated to get involved and you might want to consider matching their giving or supporting them in fundraising.
Issues to consider
There is no gift aid for a charity to reclaim on donations from a company. This makes sense as of course noone 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.
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.
If your business operates as a sole trader it’s still possible to consider donating to charity via your business, but there is only a tax benefit to you if you are a higher rate tax payer.
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 consider doing it before your financial year end.