In this section:
- Gifts to charity of money by sole traders or partnerships
- Gifts to charity made by companies
- Gifts to charity of land, buildings or shares by companies
- Gifts to charity of company equipment, trading stock or staff help
- Sponsoring a charity
- Payroll Giving: introduction for employers and pension providers
Gifts to charity of company equipment, trading stock or staff help
Your business can get tax relief if it makes a gift of equipment or trading stock to a UK charity or Community Amateur Sports Club (CASC). You'll be able to reduce the taxable profits your business makes by the cost of the gift made so you'll pay less tax. This applies whether you're in business as a sole trader, a partnership or a company.
Your business can get tax relief for the costs of temporarily transferring an employee to work for a charity - on 'secondment'. This relief is not available for employees seconded to CASCs.
This guide explains the tax reliefs your business can get for supporting a charity by giving it equipment, stock or assistance from your employees.
On this page:
- Gifts of equipment
- Gifts of trading stock
- Secondment of employees
- VAT
- Contacting the HMRC Charities Helpline
- More useful links
Gifts of equipment
If you're in business as a sole trader, a partnership or a company you can benefit from full capital allowances on the cost of equipment, plant or machinery that you give to a UK charity or CASC. You must have used the equipment in your normal business activities for it to qualify.
What are capital allowances?
When you buy an asset - like plant or machinery (for example, motor vehicles or computers) - to use in your business, you can reduce your taxable profits by claiming capital allowances on the asset. Capital allowances let you deduct the cost of the assets you buy from your taxable income - meaning you pay less tax.
You can set part of the cost against your profits in the year when you buy the asset. You can then claim the rest of the cost over a number of years until the whole of the asset's cost has been covered.
You work out your capital allowances by taking a percentage of the cost that's left after you've claimed allowances for earlier years. But your total capital allowances can't be more than the asset cost you. If you sell an asset for more than the cost that hasn't been covered yet, you'll have to pay tax on a 'balancing charge'. This makes sure you can't get capital allowances on more than the asset cost you.
Example
A company has no assets to claim capital allowances for. In May 2005 it buys a computer for £5,000. In the first year it can set 40 per cent of the cost - £2,000 - against its taxable profits, leaving £3,000 of the cost to carry forward to next year.
In the second year, the business can claim 25 per cent of the remaining £3,000 cost - £750 - against its taxable profits, leaving £2,250 to carry forward to the third year.
In the third year, the business sells the computer for £2,500. As this is more than the remaining balance of the cost, the business has to pay tax on a 'balancing charge' of £250 that's added to its profits.
Capital allowances on gifts to charity
Normally, if the business gives away the computer in the above example, it has to treat the gift as a sale at its market value - £2,500. So it still has to pay tax on a balancing charge of £250.
But if the business gives the computer to a charity or CASC, it can treat the gift as having nil value. So instead of paying tax on a balancing charge of £250, it can set the unused cost of the computer (in the example, £2,500) against its taxable profits so the whole cost has been covered.
There's a new system of capital allowances for assets bought from April 2008 onwards. Businesses can claim an Annual Investment Allowance of up to £50,000 a year. The special rules for giving equipment to charities continue to apply, so the gift will still be treated as having nil value. The business will carry on being able to claim capital allowances for the full cost.
Find out more about capital allowances
Gifts of trading stock
If you donate goods that your business makes or sells - your 'trading stock' - to a UK charity or CASC, you can claim the cost of these goods in your business accounts. This applies whether you're a sole trader or in business as a partnership or company. You don't have to include anything in your sales income for the value of the gift. So you can reduce your business's taxable profits by the full cost of the goods.
It's different if your business gives away trading stock to someone who isn't a charity or CASC. If you do this then you have to include in your sales income the full market value of the gift even though your business didn't get any money for it. This is referred to as a 'notional' trading receipt. So although you reduce your business's taxable profits by the cost of the goods, your business also has to pay tax on the notional sales income.
Secondment of employees
If your business lends or temporarily transfers an employee to work for a charity (but not a CASC) you'll be able to treat the cost as a business expense in your accounts. If your business carries on paying that employee, you'll be able to set the cost against your business's taxable profits as if they were still working for you. The cost includes their wages and any business expenses.
Your business will need to carry on operating PAYE (Pay As You Earn) on their wages.
Volunteering
The same applies if any of your employees are volunteering in work time. Your business can continue to claim tax relief for the costs of employing them such as salary and employer’s national insurance. These costs can still be treated as a business expense when calculating chargeable profits for your business.
VAT
If your business buys goods to donate to a UK charity this isn't counted as a business activity for VAT purposes. You won't have to account for VAT on the items you’ve purchased to give away.
If your business is VAT-registered you won't be able to reclaim the VAT you paid when you bought the goods. This is because you can only reclaim VAT on things that you buy for business purposes.
VAT and donations of trading stock
If you donate goods that you make or sell in your business - known as your trading stock - to a UK charity, this counts as a taxable business supply for VAT purposes.
If you're VAT-registered you'll need to account for VAT on the goods you give away at the appropriate rate, depending on what the items are - either the standard rate (15 per cent), the reduced rate (5 per cent), or zero rate.
The standard rate of VAT is reduced to 15 per cent from 1 December 2008 to 31 December 2009. The standard rate will change back to 17.5 per cent on the 1 January 2010.
However, you can zero rate your supply - even if normally the goods are standard-rated or reduced-rated - if your company makes the donation specifically so that the charity can:
- sell the goods
- hire out the goods
- export the goods
This means that if you’re VAT-registered your company is entitled to reclaim the VAT on the purchase of the trading stock that you donate.
Find out more about whether your company should register for VAT
Contacting the HMRC Charities Helpline
For more help you can contact the Charities Helpline on Tel 0845 302 0203 (open from 8.00 am to 5.00 pm, Monday to Friday).More useful links
Find out about sponsoring a charity
Find out about gifts to charity made by companies
Find out about gifts to charity of land, buildings or shares by companies
