The UK government makes sure that the flow of capital remains smooth and under the eye of the government to prevent fraudulent activities and corruption. For this purpose, the government has imposed a tax on every transaction or payment and makes sure that each citizen returns tax files at the end of the financial year. Even the charity you give to organisations or individuals is not exempt from tax above a certain limit. Imagine you give a certain amount to charity, but you are unaware of the liability it has brought to you. This article gives details about tax-deductible amounts on charitable donations and how to claim charitable donations as business expenses.
How to Claim Charitable Donations as Business Expenses in the UK?
Charitable donations are the amount of money you give to a charity, an individual, or an NGO to complete the goals it has defined for social welfare. However, the donor doesn’t get anything in return. Charitable donations are used by social welfare organisations or NGOs to help people and solve social issues. There are multiple types of social welfare societies and hundreds of NGOs working in the UK, each with its own defined purpose and goals. There are societies and NGOs for old people and drug addicts to eradicate illiteracy, homeless people, and much more.
How to Make Charitable Donations?
There are many ways of making charitable donations in the UK.
1- Donations
Making donations is the most common form of philanthropy across the globe. In the UK, almost 62% people give charitable donations, with the monthly amount being £49.
2- Donor-advised funds
Donor-advised funds are basically an account that is open for charity purposes. It provides donors with a platform to deposit charities. Through a donor-advised funds account, donors are liable to tax deductions by the UK government.
How Do Donor-Advised Funds Work?
The donor-advised fund works in the following way:
- Donors deposit cash or contribute assets and real estate to charity.
- The donor-advised fund-sponsoring organisation manages the assets donated by the donors.
- Donors have the authority to transfer funds to their recommended social welfare organisations.
- As the amount of funds increases in the donor-advised funds account, the amount of grants to social welfare organisations and NGOs can be increased.
How to Claim Charitable Donations as Business Expenses?
In the UK, you can claim the donation amount for tax relief. There are many ways to do so.
1- Deduct from your profits
You can deduct the donation amount from the profits your company makes during a financial year. You can deduct while making a tax return file at the end of the financial year. The claim can be made on:
- Money donated
- Land or asset sold for charity
While filling out the tax return, you should enter this amount in the deductions and tax relief section along with proper documentation for proof
2- Deduct as a business expense
The charitable donations can also be deducted as business expenses. This can be done if you have
- Second employees
- Sponsored a charity
3- Claim capital allowances
Anything can be donated other than money. If you are donating anything other than money, you can claim capital allowance from the UK government at the end of a financial year.
4- If you donate more than your profits
If you have donated more money to charity through donations or a donor-advised fund account than the profits earned per year, then you can claim a tax deduction from the UK government. The amount you can claim as a tax deduction is making your company profits for the year to zero.
- Declare your trade losses in your tax file at the time of tax return
- You can add any remaining amount in your tax amount to the amount of tax to be paid in the coming year.
- Payments that don’t qualify for tax deduction:
- The charitable donations that don’t qualify for tax deduction according to HMRC are
- Loans that are to be repaid by the charity
- Donations are made on condition by the company to buy land or its products
- Donations are made from company dividends
The Bottom Line
The UK government website gives clear and precise instructions on how to claim charitable donations as business expenses in the UK. The donors can donate in a variety of ways through donations or donor-advised funds. In the latter type of charity, the donors can recommend social welfare societies of their choice for granting funds. Many social welfare societies and NGOs are working in the UK for the well-being of UK citizens, and they accept all kinds of donations. The donations are above the total profit of a company during a financial year.
Disclaimer: All the information provided in this article on claiming charitable donations as business expenses, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.