Is it possible to claim tax relief on a charitable donation?

Can You Claim Tax Relief on a Charity Donation?

In this blog, I’m going to talk about whether it’s possible to claim tax relief on a charity donation.

The short answer is yes — there is tax relief available on charity donations — but there are slightly different rules and reliefs depending on whether you are an individual or a limited company.

Because we Grow, Profit, Invest, Account, and Serve entrepreneurs, we’re going to focus mainly on companies, but we’ll also touch upon what type of relief you can get as an individual as well.

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Tax Relief on Charitable Donations for Individuals

Okay, so we’ll start with individuals first because it’s fairly straightforward, and a lot of people would be familiar with what’s called the concept of Gift Aid.

If you’ve looked at things like Children in Need and these events, they often ask you, “Can you tick a box to enable a Gift Aid additional claim?”

Essentially, this is an extra 25p for every single £1 you donate that’s topped up through the government, and it’s basically at no cost to you as the donor, as an individual.

If you’re a higher-rate taxpayer, you can actually get additional relief on your own personal tax return, as well as approving the Gift Aid from the government at 25p.

So if you’re a 40% taxpayer, or you’re a 45% additional-rate taxpayer, you can get this extra tax relief from your personal tax return. It essentially enables you to claim back the difference.

If you’re a higher-rate taxpayer and you give through Gift Aid, you will also need to make sure you include your donations on your personal tax return, and how much you get back will depend on whether you’re a 40% or 45% taxpayer at the time of writing this.

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Tax Relief on Charitable Donations for Limited Companies

For limited companies, it’s actually fairly straightforward. It’s quite simply a deduction for corporation tax in your limited company.

You make the payment — essentially, the payment you make is what we call gross — so it doesn’t get topped up or anything like Gift Aid for individuals. For every hundred pounds you pay, a hundred pounds goes into the charity.

However, the difference is, it’s a tax-deductible expense for you as the business. So, for example, for every thousand pounds you donate through your limited company — depending on exactly what your corporation tax rate is — let’s say it was the main rate of 25%, this would actually reduce your corporation tax bill by £250.

So, in many ways, it’s a nice, simple, straightforward thing to understand. It’s just like any other tax-deductible expense, essentially.

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Important Points to Remember

You can’t gift so much to donations that it would actually cause a loss. This is just a kind of exception, but for most businesses, that’s not going to be something to think about.

Obviously, if you’re making donations, you need to have valid records, just like you would for invoices and receipts from your suppliers as part of your bookkeeping affairs. You need to keep the records of proof of the donations you’ve made.

Please note that sponsorship can be very different from donations. That’s something we can include in a different blog.

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Just to really wrap up — there is this extra benefit of getting tax relief, whether you are an individual or a business (limited company).

 Feel free to contact us if you would like any advice around your circumstances.

Our commonly asked questions about tax relief

1.  can I claim back tax on charity donations?

So this depends on whether you are a limited company or an individual, including self-employed people.

Limited companies can treat it as a tax-deductible expense that can be claimed as part of your ordinary expenses, and you therefore, get tax relief on your corporation tax return, reducing your corporation tax bill.

The exact amount you get as tax relief in a limited company depends on the rate you pay tax, it can be up to 25%.

So, for every £1,000 worth of donations, this could be worth up to £250 in tax savings, in cash terms.

If you are an individual, there is no relief for basic-rate taxpayers.
However,  by entering the donations on your personal self-assessment tax return, it will extend your basic rate tax band, and if you are a higher-rate taxpayer, you will get the tax saving on these payments.

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2. Can I pay less tax if I donate to charity?

If you are a limited company, it will reduce your corporation tax by making payments to charity, depending on your exact corporation tax rate.

If you are self-employed or an individual, the payments will extend your basic rate tax band on your self-assessment tax return, which will give you a tax benefit — but only if you are a higher-rate taxpayer.

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3. Are charitable donations tax-deductible for a UK self-assessment?

Charitable donations are not exactly tax-deductible when it comes to a self-assessment.

You are required to enter the relevant amount you have donated on your personal tax return and If you are a higher-rate taxpayer, this will provide an actual tax saving to you.

If you are a basic-rate taxpayer, there will not be a tax saving, but it’s worth tracking these donations on your personal tax return.

This is unlike limited companies, where you can claim the charitable donations against your corporation tax liability as a normal expense.

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4. Are donations tax-deductible for the self-employed?

Self-employed donations are treated the same as individuals, so it is not treated as typical tax-deductible expense.

However, it can go onto your personal self-assessment tax return, and it will increase your basic rate tax band (the same as individuals).