Tax Relief on Charitable Donations UK
Tax Relief on Charitable Donations UK: A Guide for Individuals and Businesses
Tax relief on charitable donations in the UK depends on who is giving. Individuals use Gift Aid, limited companies deduct the donation from their profits, and sole traders and partners are treated as individuals. Choosing the right route affects how much relief you receive and how you record the payment.
Under Gift Aid, an eligible charity can claim an extra 25p for every £1 you give by reclaiming basic rate Income Tax from HMRC. Higher and additional rate taxpayers can claim further relief themselves. A limited company can generally deduct qualifying donations from its profits before Corporation Tax is calculated.
This article is intended to explain how each type of relief works, what a business can claim, which records to keep and where claims tend to go wrong.
What is tax relief on charitable donations?
UK tax rules give relief on donations to registered charities and, in some cases, Community Amateur Sports Clubs (CASCs). The relief available depends on who makes the donation and how.
- Individuals can give through Gift Aid.
- Higher and additional rate taxpayers can claim extra Income Tax relief on Gift Aid donations.
- Employees can give from their pay before Income Tax through Payroll Giving.
- Sole traders and partners are generally treated as individuals. An ordinary cash donation is not a business expense.
- Limited companies can usually deduct qualifying donations when calculating taxable profits for Corporation Tax.
- Individuals and companies can also get relief for gifts of certain land, property or shares.
GOV.UK sets out the main routes in its guide to tax relief when you donate to a charity.
How does Gift Aid work?
Gift Aid is the most common way for individuals to give tax-efficiently. You sign a Gift Aid declaration and the charity reclaims basic rate tax on your donation. A £100 gift is then worth £125 to the charity, and it costs you nothing extra.
Example: You donate £100 to an eligible charity and make a valid Gift Aid declaration. The charity claims £25 from HMRC, so your donation is worth £125.
The full eligibility rules are in the GOV.UK Gift Aid guidance.
Do you need to be a taxpayer to use Gift Aid?
Yes. Your donations qualify as long as they are not more than four times the tax you have paid in that tax year (6 April to 5 April). The tax can be Income Tax or Capital Gains Tax.
Signing a declaration does not make a donation qualify by itself. If the charities you support reclaim more tax than you have paid, HMRC can ask you to pay the difference. If you stop paying enough tax, tell the charities you support.
Can higher rate taxpayers claim additional tax relief?
Yes. The charity still claims the basic rate, but you can claim back the difference between the tax you pay and the basic rate, calculated on the grossed-up donation. The same applies if you live in Scotland.
Example: You donate £100 through Gift Aid. The charity claims £25, making the gross donation £125. If you pay 40% Income Tax, you can claim a further £25, which is 20% of £125.
Directors and business owners who pay higher rates of tax should keep accurate records of their personal donations so they do not miss this relief.
How do you claim higher rate Gift Aid relief?
If you file a Self Assessment return, enter your donations in the charitable giving section. If you do not, you can contact HMRC and ask them to amend your tax code.
On a Self Assessment return you can also claim relief on Gift Aid donations made in the current tax year, up to the date you send the return. This helps if you want relief sooner, or if you paid higher rate tax last year but will not this year. You cannot do this if you miss the filing deadline, or if your donations across both tax years come to more than four times the tax you paid in the previous year. Speak to your accountant before relying on this.
Gift Aid and adjusted net income
Gift Aid donations reduce your adjusted net income, and they do so at the grossed-up value. A £1,000 donation reduces adjusted net income by £1,250.
This matters if your income sits near the following thresholds:
- £100,000: above this, the Personal Allowance reduces by £1 for every £2 of adjusted net income.
- £60,000: above this, the High Income Child Benefit Charge can apply.
See the GOV.UK adjusted net income guidance for how the figure is worked out.
Can a sole trader claim charitable donations as a business expense?
Generally, no. A sole trader and their business are the same legal person, so an ordinary cash donation is treated as a personal donation. If you are self-employed and give £500 under Gift Aid, the relief goes through your personal tax position and your Self Assessment return.
Partners follow the same approach for their own donations.
Tax relief when a limited company donates to charity
A limited company can deduct qualifying donations from its total business profits before Corporation Tax is calculated. According to GOV.UK, a company can claim relief when it gives:
- money;
- equipment or trading stock;
- land, property or shares in another company;
- employees on secondment; and
- sponsorship payments.
Example of Corporation Tax relief on a company donation
A company has taxable profits of £80,000 before a qualifying £5,000 cash donation. If the donation qualifies, the company deducts it and its taxable profits fall to £75,000. The Corporation Tax saving depends on the rate that applies to those profits.
Relief reduces the cost of the donation. It does not mean HMRC reimburses the company for the full amount.
Can a company claim Gift Aid?
No. Company donations are sometimes called Gift Aid, but they work differently. When an individual gives £100 through Gift Aid, the charity claims an extra £25 from HMRC. A company makes its qualifying cash donation gross, the charity does not add the 25% uplift, and the company gets its relief by deducting the donation from its profits.
Keep this in mind when you record donations in the company accounts and the Company Tax Return.
