Are charitable donations a business expense?

Since starting her book-keeping business in 1993, MNC Member Amanda Trott has gained qualifications from the IAB and AAT, and also is part qualified CIMA. Her experience covers all aspects of book-keeping and management accounting, year-end reports, VAT and payroll services. She’s taken some time to share with us how charitable donations work if they come from your business.

We all had great fun recently at the MNC Facebook training session in Hove run by Nicky Chisholm and Sara Guiel. A big thank you to them for sharing their knowledge with us.  It was a lot to take in but really well worth the effort. I was asked a question on whether donations to the wing walking charity event would be claimable as a business expense.  Its not as straightforward as you would think, so thought I would try to clarify the HMRC ‘rules’ in case anyone wants to donate to this worthy cause.

Whether you are a sole trader, partnership or limited company, you can make charitable donations through your business.  Whether you get any business tax benefit from the donations is a different question and does vary depending on your trading structure.

If you are a Sole Trader, charitable donations are not related to the running of your business and so cannot be claimed as a business expense, but you may be eligible for tax relief via Gift Aid, and if so you should record this on your ‘self assessment’ submission.

If you are a limited company the rules are different and a limited company can pay less Corporation tax when it gives money to a charity or community sports club.  In this case you can deduct the value of the donations from your total business profits before you pay tax.

To be considered as an allowable expense, the cost of sponsorship must be incurred wholly and exclusively for your business.  Sports sponsorship is not considered as a charity donation, rather a business expense as it has a demonstrable return on the investment.

In the case of donating to the wing walking event, if you have your company name or logo displayed on one of the pink jackets, that could be considered advertising for the company so could be allowed as a business expense as Branded clothing and accessories i.e. items which have your company branding on them  Therefore if anyone wants to donate to the wing walking event and then claim this as a business expense, you may wish to donate by sponsoring your company name/logo to appear on a jacket.

Book-keeping, accounts and tax rules can be quite complex at times, as I think this query demonstrates.  If anyone would like any advice on how to keep their records and what they can claim as business expenses, I am more than happy to help. You can contact me via Facebook or by email ‘mandy.trott@gmail.com’.