IR64 - Giving to charity by businesses

How your business can get tax relief on gifts it makes to charity

This leaflet tells you how your business can get tax relief on gifts to charity of

• money
• shares and securities
• assets
• employees' time.

You can also get tax relief on sponsorship payments to charity.

It explains that slightly different rules might apply if your business is a company, sole trade or partnership.

It sets out the position from April 2000, but it is only a brief guide. If you would like to know anything else, please ask any Inland Revenue Enquiry Centre or Tax Office. The notes opposite tell you how to find your nearest office and when it is open, or you can contact our Charity Helpline numbers shown below.

For people in England, Wales and Northern Ireland

Inland Revenue (Charities)
Repayments
St John's House
Merton Road
Bootle
Merseyside
L69 9BB

For people in Scotland

Inland Revenue (Charities)
Meldrum House
15 Drumsheugh Gardens
Edinburgh
EH3 7UL

Gifts of money

Businesses can get tax relief when they give money, whether as a one-off or a regular payment. From April 2000, all gifts of money qualify for tax relief under the Gift Aid scheme. There is no longer separate tax relief for payments to charity under a deed of covenant. There is no limit to the amount which the business can give, but the way you get tax relief will depend on whether the business is a company, sole trade or partnership.

How does a company get relief?

If your company decides to give money to charity, it simply makes the payment through Gift Aid and deducts the amount when working out its profits for corporation tax purposes. You make the full payment to the charity. You do not need to deduct any tax from the payment and the charity does not claim back any tax on the gift. You no longer have to provide a Gift Aid certificate to the charity nor provide a new form of declaration. If your company has no corporation tax liability in an accounting period, there are special rules regarding how any loss created by the donation can be used. You should contact the Inland Revenue office that deals with your company's corporation tax affairs if you need further information on this point.

If you are a close company, generally one under the control of five or less people, there is a limit on the benefit which the company, or a person connected with the company, can receive from the charity in return for the payment. (An explanation of connected persons is set out in our leaflet CGT 1 ‘Capital gains tax. An introduction'.) The limits on benefits are set out below.

How do sole traders get relief?

If you are trading on your own account, you can give through Gift Aid as any individual taxpayer would. Your gift will be treated as paid out of taxed income and the charity will reclaim basic rate tax on it from the Inland Revenue. If you are a higher rate taxpayer, you can get relief on the difference between the basic rate and the higher rate of tax on the gross amount of your gift. You simply enter the details of the gift on your Income Tax Self Assessment return. You will need to make a Gift Aid declaration to the charity. The charity may supply you with its own Gift Aid declaration form.

How do partnerships get relief?

We treat any gift by a partnership as made by the individual partners. We will treat you and your partners as each giving an equal share of the gift, unless you tell us that the partnership has decided to split the gift in a different way. We will treat your gift as paid out of your taxed income and the charity will reclaim basic rate tax on it from us. If you are a higher rate taxpayer, you can get relief on the difference between the basic rate and the higher rate of tax on the gross amount of your share of the gift.

Unless one partner has power, under the partnership agreement or some other document, to make a Gift Aid declaration on behalf of the partnership, each partner will need to make a Gift Aid declaration in favour of the charity. This can be done on one declaration, providing the name and address of each partner is shown. In Scotland, where partnerships have a legal personality, a partner may make a Gift Aid declaration on behalf of the partnership simply showing the partnership's name and address.

What evidence do I need of the payment to the charity?

If required, you will need to provide us with reasonable evidence of all the payments you have made to charities in the year in the same way as for other items in your Self Assessment tax return. A cancelled cheque, an entry in a bank or credit card statement, or an acknowledgement from the charity would suffice.

What are the limits on the benefits I can receive in respect of my gift?

The following table sets out the maximum benefits an individual, partner, or close company donor is allowed to receive in any tax year in respect of gifts to any one charity. Your business can make gifts to as many charities as you choose.

The total benefits must not exceed £250.

Gifts of shares or securities

Businesses can get tax relief for gifts to charity of certain shares and securities. This is in addition to the relief you can claim for them when calculating capital gains (see our Helpsheet IR 295 ‘Relief for gifts and similar transactions').

How does the tax relief apply?

You can claim this relief if you give to a charity, or sell to a charity at less than market value, any qualifying shares or securities. However, a company cannot get relief for a gift of its own shares.

What shares or securities qualify?

The following categories qualify

• shares and securities listed or dealt in on the UK stock exchange, including the Alternative Investment Market
• shares and securities listed or dealt in on recognised foreign stock exchanges
• units in an authorised unit trust
• shares in a UK open-ended investment company
• holdings in certain foreign collective investment schemes.

If in doubt, we can tell you whether the shares or securities will qualify for relief.

How do I calculate the amount of relief?

The amount you can deduct from the business' profits is

• the market value of the shares or securities at the date of disposal, plus
• any incidental costs of disposing of the shares (broker's fees, etc.), less
• any money or the value of any other benefits the business, or a person connected with the business, receives from the charity as a result of you giving the shares to the charity.

How do I claim the relief?

Calculate the amount as above. Deduct that figure in working out the business' profits for corporation tax purposes in the accounting period in which the disposal takes place. The amount should be entered on your Corporation Tax Self Assessment return as a charge.

If you are a partner or sole trader, deduct the amount when working out your income for the tax year in which the disposal takes place for your Income Tax Self Assessment return.

What date should I take as the date of disposal for the purpose of establishing the market value of the shares or securities?

The date on which you transfer ownership of the shares to the charity. In the majority of cases, that will be the date you sign the stock transfer document. There is further information to help you identify the market value at that date in our leaflet IR 178 ‘Giving shares and securities to charity'.

Gifts of equipment or trading stock to charity

What qualifies for relief?

The gift must be an article which is either

• an item manufactured or sold in the course of your trade, or
• machinery or plant used in the course of your trade.

You can get relief if you are a trading company, a sole trader, or a trading partnership.

How do I get relief?

When you give away an article manufactured or sold in the course of your trade, the normal treatment is to include the market value of the gift as a trading receipt when calculating your profits for tax purposes. Where such articles are given to a charity, nothing is included as a trading receipt. In that way, you get relief for the cost of the article in calculating the taxable profits of the trade.

In the case of machinery or plant used in the course of your trade, treat it as having been disposed of at nil value for capital allowances purposes (rather than at market value, as would otherwise be the case). The total capital allowances given to you in respect of the article will be equal to its cost.

Secondment of employees to charity

Who can get this relief?

Trading or investment companies, sole traders, or trading partnerships.

What sort of secondments qualify?

The secondment of an employee to work for a charity on a temporary basis.

How do I get relief?

Deduct any costs you incur in connection with the employment of the person on secondment (including his or her salary) in calculating your taxable profits for tax purposes.

Sponsorship payments

Who can get relief?

Trading companies, sole traders, or trading partnerships.

What relief is available?

Relief is available for payments to sponsor a charitable activity, provided the payments are made wholly and exclusively for the purpose of your trade, and are not of a capital nature. (Capital expenditure is expenditure incurred for the purpose of acquiring, improving, or extending an asset held for use in the business.)

What sort of payments might qualify?

A payment made to get publicity for your name or product, which represents a reasonable return for the amount paid. Whether a payment qualifies for relief will depend on the facts. If you are in doubt, contact your Tax Office.

How do I get relief?

You deduct the sponsorship payments in calculating your trading profits for tax purposes.

What happens if sponsorship payments do not meet the conditions for relief?

No relief is available unless all the conditions are met. For example, if you make a sponsorship payment to a charitable activity which results in your business acquiring an asset of the charity (for instance, office equipment or vehicles), you cannot deduct the payment when calculating the trading profits of the business for tax purposes. Similarly, if you make a payment partly for commercial reasons and partly for charitable reasons, you cannot deduct it in calculating the trading profits of the business for tax purposes. However, you might be able to get relief for such payments as Gift Aid donations. If you are in doubt about how we will treat a particular payment for tax purposes, ask your Tax Office before making it.

Our service commitment to you

The Inland Revenue and Customs & Excise are committed to serving your needs well by

acting fairly and impartially

We

• treat your affairs in strict confidence, within the law
• want you to pay or receive only the right amount due.

communicating effectively with you

We aim to provide

• clear and simple forms and guidance
• accurate and complete information in a helpful and appropriate way.

providing good quality service

We aim to

• handle your affairs promptly and accurately
• be accessible in ways that are convenient to you
• keep your costs to the minimum necessary
• take reasonable steps to meet special needs
• be courteous and professional.

taking responsibility for our service

• We publish annually our customer service aims and achievements.
• If you wish to comment, or make a complaint, we want to hear from you so we can improve our service. We advise you how to do this.

We can provide better service if you help us by

• keeping accurate and up to date records
• letting us know if your personal/ business circumstances change
• giving us correct and complete information when we ask for it
• paying on time what you should pay.

Further information on customer service is available at Inland Revenue and Customs and Excise local offices, set out in our Charters, complaints leaflets (COP1 and Notice 1000) and Codes of Practice.

These notes are for guidance only and reflect the position at the time of writing.
They do not affect any right of appeal.
Issued by the External Communications Unit of the Inland Revenue

September 2000 © Crown Copyright 2000