Holden Associates – Accountants & Business Advisers Blog

Did you know that you can claim tax relief on donations that are given to UK based charities? Giving is always good – especially if it brings the added bonus of being able to claim tax relief after. Gifts of money that are given to a charity by your company should be paid as gross. That is before any tax is deducted. These donations are then deductible from the total profits that your business makes when calculating Corporation Tax.

What Kind of Donations Qualify for Corporation Tax relief?

Tax relief can be claimed on payments of money. Payments which fall within the field of profit distribution such as dividends are exempt from tax relief.

Tax relief can also be claimed on a number of other gifts to charities.

What Does Not Qualify as Donation?

Gifts that fall within the following remit are exempt from being treated as charitable donations.

• Gifts that are linked to any conditions relating to repayments.
• Gifts where your company or a person ‘connected’ to your company has received a benefit over a certain value in return
• Gifts that come with pre arranged conditions. For example an agreement that the charity will purchase property form your company or a connected person

How to claim Corporation Tax relief

When your company makes a qualifying donation to a charity, the amount paid is treated as a ‘non-trade charge.’ In essence this means that your company can make a claim in its Company Tax Return to offset the amount of the donation against its taxable profits.

Your company should retain normal accounting records that tally with entries on your Company Tax Return along with any other relevant documentation, such as thank you letter from the charity.

Tax records should be kept for at least six years after the end of the accounting period to which they relate. If HM Revenue & Customs (HMRC) make any enquiries about your Company Tax Return, you will need to keep the records until the enquiries are completed.

Charitable donations should not be used to create or increase your company’s trading losses, or carried over from year to the next. Making a donation of more than your taxable profit is not accepted by HMRC. However, if your company is part of a group of companies, the excess can be combined as group relief.

You can also make donations if your company is non-resident within the UK but is part of HMRC’s Corporation Tax regime. This will generally apply to companies trading in the UK through a branch or agency.

However, there are special rules for companies that are wholly owned by one or more charities. As long as a donation is made to the parent charity within nine months of the end of a particular accounting period, the company can choose to treat it as if it was paid in that earlier accounting period. A claim to carry back a gift in this way must be made within two years of the end of the accounting period to which the gift relates.