When you are residing in the UK you must have seen multiple charities out there that are looking for financial support. A great source of help can come from the owners of the limited companies there. They are in a better financial position to do this kind of help. There is no denying that donating to promote a charitable organisation is really rewarding. It does not only become a great virtue to support the vulnerable communities of society, but it will also help to improve your image in the industry. As you go along with developing new business relations. However, charitable tax deductions are something to think about before you go for such a cause.
There are several businesses that still take pride in supporting charity organisations. In some cases, it has been observed that charitable donations are tax-deductible. From this fact, many people enquire about how HMRC will tax the donations, what is the criteria to qualify as a donation for charity, and what records you will need to keep the claim. This comprehensive guide is compiled to answer these frequently asked queries. Let us get into further details.
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What are the Criteria to Qualify for a Charitable Donation?
There are several sizes and shapes for charitable donations. However, there are certain types that are considered by HMRC. This is because the donations can really impact your limited company and the corporation tax you pay for it. The accepted donation types are outlined below:
- The payments of sponsorship
- Employees
- Company shares, property shares, and land shares
- Trading stocks or equipment
- Money
Now if you or your business is in a position to give any of the earlier mentioned items to the charity organisations, claiming tax relief will be possible for your case. What you have to do it to deduct the value of donated items from the amount of profit you have earned from your business. This act has to be done by you paying tax on earned income. However, there are certain rules related to each type of donation that you will have to follow.
What Happens After You Finally Donate Your Money to the Charity?
If a community amateur sports club (CASC) or a charitable organisation gets a donation from your limited company in form of money, you are allowed to deduct is the value of money from the earned profits before you go paying your corporation tax. This explains further that you are free of paying tax on your capital gains. Even if you have given a charitable gift, the market value of this item can be deducted from your business profits as well.
However, the case of giving donations to CASC brings in a different scenario. This does not allow you to deduct the market value of the gift from your profits. Here is a list of monetary donations that do not allow you to deduct their value from the profits before paying your tax.
- The amount of loan that the charity will repay on your behalf.
- The amount of money that has the involvement of distribution of company profits or dividends.
- The amount of money that is gifted to the charity organisation on the condition of buying property from your business.
- A set of rules is toff be followed if you get something from the charity in return for paying the donations.
What is the Scenario of Giving the Trading Stock to a Charity?
Just as in the scenario of paying the amount of money to the charity, your business is allowed to give the equipment or the trading stock to the charitable organisations. This will also allow you to pay less tax when it comes to the amount of corporation tax. This can even include the items that your company sells or makes. However, when you are in a position to give charity in form of stocks or equipment, you will be allowed full capital allowance by HMRC. This includes the cost of the equipment. Some examples of the equipment are given below:
- The furniture of your office
- Office machinery
- Tools
- Cars and vans
- Printers
- Computers
Moreover, if your business is interested in giving the trading stocks in form of a donation to a chart organisation, this value will not be included in the sales income of your company. You will still get tax relief on the value of stocks you have given to the charity in form of a donation.
The Bottom Line
Now that you have gathered a fair amount of information about charitable tax deductions, we can wrap the discussion around. This does not matter whether you are paying the donations in form of charity gifts, non-cash items, or in form of money, there comes the benefit of tax relief. This will not only support charitable organisations but also support the vulnerable communities of society.
This will allow you to reduce your tax bills. However, you will have to be considerate about the specific set of rules to qualify for the claim of tax relief. Otherwise, HMRC will not allow you to get the benefit of reduced tax bills. In some cases, you are not even allowed to deduct the cost of charitable terms from the profits of your business. You will have to pay the full corporation tax in such a case. We hope these few minutes of reading will help you develop a better understanding and you will be able to handle the charitable tax deductions better.
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Disclaimer: The information provided in this blog about charitable tax deductions, including the text and graphics, in general. It does not intend to disregard any of the professional advice.
