Why donating from your business benefits you, too
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Many business owners want to use their business to make a positive difference in the world. In 2022, for instance, companies in the FTSE 100 gave £1.85 billion to charities. Local businesses also want to be charitable, participating in community events and fundraising.
Giving from your business can also positively affect you (the owner), staff and corporate tax planning. Below, our Grantham financial advisers explain how this works and how donating could be integrated into your wider business financial plan.
We hope these insights are helpful. To discuss your own business or financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:
01476 855 585
info@casfin.co.uk
The importance of donating
Many British people are still reliant on small charities in 2024. According to UK Fundraising, a quarter of our citizens need charitable help at least once per week. Moreover, nearly half of UK adults believe the government should do more to support these small charities.
One in ten people (13%) use a local charity because they are lonely, and 29% of charity users say they are primarily seeking to “meet new people.” Over one-fifth have used animal shelters, and 19% have used advice and support centres.
As a local business, you are likely in a key position to understand some of the challenges in your community. Maybe you can help? In the process, you could make your firm more tax-efficient, boost team morale and attract new talent.
Donating as a company
Tax rules operate differently for charitable donations depending on whether you are a limited company or a sole trader. Let’s focus on the former first.
If you represent a limited company, you can claim a donation as an expense provided you give to a registered charity or sports club. Naturally, this lowers the profits in your reporting, potentially saving on corporation tax.
In 2024-25, corporation tax is 19% on limited company profits unless these exceed £250,000 (at which point a 25% rate applies). Between £50,000 and £250,000, companies pay tax at the main rate, reduced by a marginal relief (details for how this works can be found on the UK government’s website here).
For instance, suppose your company generated £200,000 in the 2024-25 tax year, resulting in a £49,250 tax bill. However, if you gave £20,000 to charity through the business, the corporate tax bill would fall to £43,950.
It is not just money that you can donate to charity via a company. You can also give away equipment, employees (on secondment), land, property and other assets. Just be mindful of two key rules when donating:
- You cannot donate more than your total company profits for the tax year.
- If your business receives something in exchange for the donation (e.g. ticket sales), then the benefit value must be below the thresholds set by HMRC.
Donating as a sole trader
You cannot claim charitable donations as a business expense as a sole trader. Instead, donations paid from your business bank account should be listed as “personal drawings” or a “non-business transaction”. HMRC will then regard the donation as if it came from you as an individual taxpayer.
In 2024-25, Gift Aid (where eligible) allows the charity to reclaim an extra 25p for every £1 donated. So, a £2,000 donation could be increased to £2,500.
For Higher Rate taxpayers, you have the additional benefit of being able to claim 20% of the gross donation as tax relief. For additional taxpayers, this is 25%.
Other benefits of giving
Of course, it feels good to give to charity. It activates pleasure regions in the brain. There can be business-wide benefits, too.
In particular, charitable work and giving can boost employee morale and engagement. If more team members feel like they are working together towards a “common good” rather than just turning up at the office, it can make them more loyal to the business.
In a similar vein, charitable giving can boost your recruitment efforts. One study by the Charities Aid Foundation found that 47% of British people would be more inclined to work for a business that donates to charity.
Another benefit of donating to charity is the positive message it sends to clients – both existing ones and potential new ones. It helps them to see your business values more clearly. Getting involved with CSR (corporate social responsibility) also humanises your brand as more people see the “faces behind the business” – e.g. in social media posts about an event.
Invitation
If you are interested in discussing your own financial plan or business strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
