If you’re donating money to charity there are a few things you should be aware of, and a couple of hidden tax traps you may not know about.
If you donate to a registered charity in your own name you can opt to donate under the Gift Aid scheme. This means that if you donate £800 to the charity they can reclaim a further 20% tax from HMRC, so it’s worth £1,000 to them. Look out for Gift Aid on entry fees to certain museums as well as intentional gifts, as the admission sometimes counts as a donation.
When you then come to prepare your personal tax return you should add in any donations you have made because they will increase your basic rate tax band by the gross value of the donation. So for 2014/15 if you give away £800 your tax band will increase from £31,865 to £32,865.
But be careful! If you tick the gift aid box but are not a UK taxpayer in that year, or your tax paid is not enough, then the 20% that the charity reclaims from HMRC will be reclaimed from you as part of your tax calculation.
Paying via your company
If you donate to charity via your company then it’s not under Gift Aid, so a donation of £800 is worth just that to the charity. However, it is a deductible expense for Corporation Tax purposes and, because it is a company payment, therefore doesn’t need to be declared on your personal tax return.
Your company accounts may need to detail the donations that the company has made if they go over a certain level, but that’s just for notational purposes.
If you are not a higher taxpayer it therefore makes more tax sense to pay donations via your company, as you will then get 20% Corporation Tax relief – although the charity will receive 20% less in funds.
We’re often asked by clients if they can donate to their child’s school in return for tuition, or to their local rugby club in return for their membership, and the answer is usually no because of restrictions on what you’re allowed to receive in exchange for a donation:
If you’re not sure about how these rules effect you, give your friendly contractor accountant a call before you make the donation, and they can talk you through it.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.