It can be tax efficient to make payments to a charity through a limited company rather than personally via gift aid. There are two main ways to do this- by way of a normal donation or by other means e.g. sponsorship of an event.
CHARITABLE DONATION
If your company makes a normal donation, it must be a pure donation from which you either receive no benefit or very nominal amounts as detailed in HMRC guidance here.
The company will receive relief on the corporation tax return in the accounting period in which you have made the donation. However, if you donate more than your company’s profits then this “loss” cannot be utilised or carried forward.
SPONSORSHIP
If your company gets a benefit related to the donation then it is treated as a sponsorship payment. In order to treat this as a business expense it must meet the criteria detailed below. Further HMRC guidance is here.
The company will receive relief on the corporation tax return by way of a deduction from business profits and therefore could generate a loss which could be utilised and carried forward against future taxable profits.
The charity must meet the UK definition
It must be established for charitable purposes only
It must be subject to the jurisdiction of a relevant UK court of a relevant territory (these include EU member states, Iceland and Norway).
It must comply with any requirement under the applicable law to be registered. Click here to check whether the charity is a registered charity.
The managers must be fit and proper persons
The GIFT must be wholly and exclusively for the purpose of trade
In order for the donation to meet this test, you must ensure:
The charity has a local connection to the business
There is no personal connection to the donee
There is publicity surrounding the making of the donation
IMPORTANT NOTE
When making the donation via your company you are not able to claim gift aid - this is only allowed to be claimed by individuals.
Get a donation receipt if possible - this should include:
Charity name
Charity registration number
Payment date
Amount paid