The joy of giving

Giving to charity not only brings joy, it can also reduce tax for companies and individuals.

Companies will pay less corporation tax when they donate money, equipment or property and shares to charity. As an example, if a company donates £1,000 to a charity, the full amount of the payment can be deducted from the profits of the company in calculating corporation tax payable. As a result the company saves £190 (£1,000 *19%) in corporation tax and the charity receives £1,000.

When a UK taxpayer makes a charitable donation to a UK registered charity, if the UK tax payer elects to have the donation classified under the “Gift Aid” scheme, then the charity can reclaim 25% of the donation from HMRC. In addition, the donor will receive tax relief on the donation. For basic rate tax payers, this is neutral but for higher or additional rate tax payers, an additional amount of tax relief can be reclaimed through the self-assessment tax return.

For example, if a higher rate taxpayer (40%) donates £100 to charity, their basic rate band is extended by £125. The charity claims the 20% tax from HMRC under gift aid scheme and receives £125. The taxpayer also benefits from the donation due to the fact that £125 of income that would have been taxed at 40% (higher rate) is now taxable at 20% (basic rate) by making the Gift Aid declaration. The tax saved is 20% of £125 i.e., £25 and the net cost to the donor is £75.

If you are a company or individual looking to save tax, contact us today for a free consultation.

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