For sole traders and partnerships charitable subscriptions or donations are not allowable as a deduction for tax purpose unless, exceptional, they are incurred wholly and exclusively for the purpose of the trade (charitable sponsorship).
If the donation is made by an individual tax relief is available at the taxpayer’s highest rate. The individual pays the net amount to the charity and claims the higher rate relief on their tax return.
For companies Gift Aid is paid to the charity gross and the full amount is then deducted from profits when calculating the corporation tax payable.
In addition, loss relief cannot be claimed on donations even if they are made under gift aid. In these circumstances consider paying charitable donations personally through Gift Aid, rather than through the company.
This might be some form of advertising or promotion for your company’. That makes the payment an allowable expense which can be deducted from your company’s income when arriving at the amount of trading profit or loss. Losses can be carried back or forward.
Charitable donations by companies.
Donations made by companies to registered charities or Community Amateur Sports Clubs are not within Gift Aid relief scheme. A company may however receive Corporation Tax relief on the charitable donations it makes as a deduction from its profits. The cost is not a trading expense so cannot be deducted from income. The relief is given as a “charge against profits” which is effectively the same thing except where there are losses.
Where your company is at risk of making losses, use sponsorship deals with charities as opposed donating straight gifts to them. Perhaps an ad or a mention for your business at a charitable event.
Published 13 September 2017.
Updated 6 August 2018.