Tax relief on donations to charity

As we approach the festive season, many of us begin to give more generously. Christmas is the biggest period for charitable donations in the UK. Whether you are thinking of donating to charity this Christmas, or you make donations at any time throughout the year, you may be able to claim a little back from HMRC, by way of tax relief on your donations. Whether you are an individual or make donations to charity through a limited company, here is what you need to know.

Tax relief on personal donations to charity

You’re probably already aware of Gift Aid. When you donate to a charity with Gift Aid, the charity can claim basic rate tax on the donation from HMRC. This means if you give a charity £100, the donation is grossed up by 20% and the total the charity will receive is £125. £100 from you and £25 from HMRC.

If you are a higher rate tax payer (40%) you can personally receive tax relief for the extra 20% (the difference between the relief HMRC has claimed and the rate of 40% which you pay). The way this works is by extending your basic rate band by the donation you have made, grossed up by 20%. This means that if you have made a £100 donation to a charity, an extra £25 is donated by HMRC to the charity and your basic rate band is extended by £125. In simple terms, you will receive an additional £25 tax relief on your £100 donation if you are a higher rate tax payer, and £31.25 if you are an additional rate (45%) tax payer.

This applies to individuals, sole-traders and people in partnership. Charitable donations are not allowable expenses for sole-traders and those in partnerships. This means that any donations made are treated as being paid by yourself, and you personally receive tax relief for the donation.

If you make donations through a limited company  

Limited companies can also benefit from giving gifts to charity. Charitable donations, donated by a company are an allowable expense and therefore reduce the company’s taxable profit, and in turn reduce their corporation tax bill. However, donations to charity cannot create or increase a loss. This means that if the donation is a larger sum than the company’s profit (before donations are taken off), then the profit can only be reduced to nil. This is also the case if the company is already making a loss. The loss cannot be increased by any donations made. The donation can only reduce profits.

We can help you!

Tax relief on gifts to charity means that you get something back when giving to a good cause. Many people are not aware that the gifts they regularly make to charity can be included on their tax return, meaning they lose out on this relief! If you make gifts to charity or you are thinking about it, and you would like more information about how you could save tax, get in touch! At Rosslyn Associates we give expert tax advice. As Chartered Tax Advisers with over 30 years’ experience, we can ensure you never pay more tax than you should! For friendly and helpful advice, get in touch by calling the the office on 0131 445 1825 or by emailing info@rosslynassociates.co.uk and a member of the team will be happy to help!