Considering helping out a Charity, Community Interest Company or other Not for Profit?

Many of us love to support organisations that work in areas that are special to us for various reasons. We give donations to help the organisation carry out their great work.  Due to the pandemic, many organisations have seen their usual income sources reduce or stop altogether.

Individuals

If you are an individual and want to donate to a registered charity, the main thing to remember is to add Gift Aid if you are a UK taxpayer.  The Charity will then be able to claim additional funds from the UK Government.

However, if you are donating to a CIC (like Embrace) or another Not For Profit then Gift Aid doesn’t apply so you donate the sum that you want to give to the organisation.

When it comes to donations from businesses, there are other considerations.

As Embrace PFC is a CIC, let’s focus on the potential for tax relief on your donations to a CIC.

Tax relief on donations to a CIC

In general terms, for the business/company donating, the donation is deductible as an expense which will reduce their taxable profits, providing they aren’t receiving any benefit in return.

Company donation

A donation to a CIC is unlikely to qualify for the same tax relief as one donated to a charity. However, it is still possible to argue for full tax deductibility – under different rules.

You would treat a ‘donation’ to a CIC as a normal trading expense (as a marketing-type expense). Luckily for businesses, there is no requirement for expenditure to have been spent efficiently. So a company can spend money on marketing (via a donation to a CIC), even if it results in very little actual benefit to them. It should still be tax deductible. In many cases though, the CIC will offer to promote the donor company through its social media channels in exchange for the donation.

This does assume that the donor is not connected to the CIC.

A donation to a charity by a company has its own special rules and gets treated differently to ‘normal’ trading expenses. Donations to national charities are treated as a deductible (but with restrictions) whereas a donation to a local charity is generally treated as fully deductible as a normal trading expense.

Donations from Self-Employed / Partnerships

This donation has to be paid gross and treated as a normal trading expense.

If you want to know more, please do get in touch,

Duncan Jay

Non-Executive Director of Embrace PFC CIC and Director at HSA Accountants and Tax Consultants