It’s Tuesday! Let’s talk Tax. Read this week’s short tax snippet for Doctors & Dentists, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – take 5 minutes to have a read.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
Making charitable donations
It is possible to donate money to a registered charity, or community amateur sports clubs (CASCs), and receive tax relief, when meeting certain conditions.
Business owners use donations as a way to keep their tax bill low, whilst making a difference to their chosen cause, perhaps one that is relevant to their personal life.
Evidence must be provided of the charitable payments in order to deduct them for tax relief.
There are different rules that apply when donating land, property, shares, equipment and other more complex types of donating.
Charitable donations as a sole trader
When donating as a sole trader, it is important to donate using Gift Aid, if at all possible. This gives the charity an additional 25p per £1 you donate, but doesn’t cost you anything extra.
The donations will qualify for Gift Aid if they are not higher than 4 times the amount of tax paid in any given tax year.
It is also possible to go back through 4 years of donations, so if you are a new business owner, this can be a way to bring your tax down in the first year of trading.
As a higher rate tax payer, you are able to claim back tax relief on the difference between basic rate tax (20%) and higher-rate tax (40%), so 20%.
To use an example, if you donated £100, the government add on 25% for the Gift Aid, bringing the total donation to £125. Apply the 20% and your tax relief would be £25.
Top rate tax payers can use a rate of 45% for the calculation, so in this example they could claim £31.25 (£125 X 25%).
Also, tax relief can be claimed against income tax or capital gains tax (CGT).
Charitable donations as a limited company
If you want to donate through a limited company, different rules apply. The donation can be deducted from the business profits before applying corporation tax.
However, if you receive something in exchange for the donation, such as tickets to an event, there are specific T&C’s that apply, so it is important to seek advice, particularly if making a large donation, or sponsoring a charity.
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