Before making a charitable donation, the directors of the company must consider whether company law permits the proposed donation and be aware that the relief will be restricted if the company has not had sufficient taxable profits.
There are many ways a company can help charities and we take a closer look at these and the tax implications below:
Corporate gifts of cash
In order to qualify for tax relief, the gifts must not have conditions attached, including any form of repayment. Any donation in excess of the maximum value benefit threshold of £2,500 will result in the payment being deemed a Sponsorship Payment.
Corporate Gift Aid is legally defined as a distribution, similar to a dividend, so can only be made from the company’s distributable profits (accumulated realised profits less accumulated realised losses).
For a donation to qualify as a corporate gift payment, it must be paid either during the year in which the profits are made or within 9 months of the company’s year-end. The payment must be an actual transfer of cash to the charity.
Corporate sponsorship
This occurs when the business gains something in return for the gift to charity for example, the charity allows you to use their logo, sell your goods at their events or publicly supports your products or services. The sponsorship is deducted from pre-tax profits as a business expense.
Corporate gifts of equipment
Companies might claim capital allowances on eligible expenditure (for example when they acquire new equipment for the trade / business). Equipment can be in the form of office furniture, technology, vehicles, tools and machinery and this has the added environmental benefit of reducing waste
Corporate gifts of trading equipment/trading stock
The full cost of the items can be deducted from your pre-tax profits. If your company is VAT registered, you should apply Zero rate to the items being gifted but still claim the VAT you have paid.
Employee secondment or volunteering time
When an employee (including you) uses work time to volunteer and you continue to pay them you may deduct the remuneration and allowable business expenses from taxable profits as usual.
Gift of a company’s investment assets (such as shares, securities and land)
Companies with investment business may hold investments such as listed shares or securities, AIM shares and securities, units in AUT’s, shares in OEICs, or a qualifying interest in land. Please note that the tax implications of gifting interest in land to a charity is complex so independent tax advice needs to be sought.
When a company makes a qualifying donation the “relevant amount” is offset against income for the relevant accounting period. The relief is restricted to a company’s taxable profit. To effect a gift of shares to a charity, a stock transfer form must be completed.
When a company gifts investment land or property, the company must get a letter or certificate from the charity which contains a description of the land or property, the date of the gift and a statement confirming that it now owns the land or property.
Shareholders gifting shares in his/her company
When shareholders give shares in their company to charity, it is treated as a disposal for CGT purposes. The value is the market value at the date of the gift (unlike listed companies, private companies may not have a valuation, therefore one is required before gifting their shares.) However, gift relief can be claimed so as a result there is no capital gains tax to pay on the gift.