October 30th, 2012 / Insight posted in

Tax relief boosts charity donations

MS writes: I am donating funds to a charity. Can they come from my company and, if so, will the company get tax relief? Alternatively, would I (or the charity) be better off if the gift came from me personally?

A company can donate funds to a charity and will therefore be entitled to tax relief on the cash donation when it is paid, writes Anjali Kothari, charity partner at Kingston Smith LLP.

The relief will be at the company’s rate of corporation tax. Thus, if your company makes a donation of £1,000 and pays corporation tax at 20%, the charity will receive £1,000 at a net cost to the company of £800.

A cash donation made by an individual under the Gift Aid scheme would allow the charity to claim back the basic rate tax on top of the donation — something that is not available for a corporate donation.

Also, if you are a higher-rate taxpayer, you would be entitled to a greater amount of tax relief (the difference between the higher tax rate and the basic tax rate). Thus, on a donation of £1,000 the charity will receive £1,250. If you, the donor, are a 40% taxpayer, you will receive relief of £250, so it will cost you £750 for the charity to receive £1,250.

There is one point to note. If you would need to draw additional income from your company in order to make a personal donation, then any benefit of making the personal donation will be lost and you may end up worse off.