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Reduce your tax liability: The taxable benefits of maximising your business' charitable contributions

| Nicholas Smith | 19 March 2024

If your business is a limited company, you’ll have to pay Corporation Tax on your profits - but by making charitable donations, you can reduce the amount of tax owed.

This is good news for businesses and an essential lifeline for charities as donations in the UK have halved over the past year.

Businesses such as yours are ideally placed to address this issue while at the same time minimising your tax liability; here’s how you can maximise your charitable contributions to enjoy a wealth of tax benefits - and more.

Calculating your tax liability

From April 2021, the regulations surrounding Corporation Tax mean that there is no longer a set rate for non-ring fenced profits. Instead, the amount of tax your business will pay now hinges on how profitable it is.

Essentially, profits between £50,000 and £250,000 pay a marginal rate. If below £50,000, then they would incur a flat 19% rate, with profits over £250,000 at a flat rate of 25%. However, this is only the case if it is a standalone company. These thresholds can be reduced if your company has associated businesses, so advice should be sought on a case-by-case basis.

If your company is close to or approaching either of these thresholds, it can pay to reduce your profits by making a charitable contribution. This act of giving not only helps some of the UK’s 169,000 national charities but it can make your business more tax efficient and uplift your reputation while engaging employees.

It’s also vital to consider the timing of donations so that you benefit from optimal tax reliefs, especially during periods of fluctuating profits, capital expenditure or other tax reliefs.

Different kinds of charitable contributions

Gifting money to a charity allows your business to deduct the value of the donation in full from your profits before they become subject to tax. While providing a monetary donation to charity is a generous gift to give, it is not just money that can be donated. In fact, you can donate:

Donating shares or assets

Consider donating appreciated shares or assets to further reduce tax on gains. This strategic approach not only benefits your business but also supports charities with valuable resources.

Payroll giving scheme

Implementing a payroll giving scheme allows employees to donate to charities directly from their salaries, gaining immediate tax relief. Consider matching employee donations to amplify the impact and boost engagement. This supports charities while also promoting a sense of shared responsibility among the workforce.

Establishing a charitable foundation

For larger companies, setting up a charitable foundation can provide a structured and impactful way to support causes aligned with your corporate values. This can serve as a long-term commitment to philanthropy, positively impacting communities and enhancing the company's reputation. A good (and especially apt) example of this is The Duncan & Toplis Foundation.

Innovative approaches

Explore unique methods such as inviting customers to make charitable donations during purchases. Utilise online platforms where customers can shop, and a portion of the proceeds goes to charities. Other options include corporation-specific websites designed to help you raise more money from corporate gifting. It is best to do your own research to discover the right platform for you and your specific needs.

Benefits beyond tax reductions

In addition to traditional monetary contributions, businesses can maximise their positive impact by embracing diverse avenues for philanthropy. This not only reduces tax liability but also enhances corporate social responsibility (CSR) and strengthens community engagement.

One such method could include incentivising employees to volunteer for charitable causes by offering paid leave for volunteering work. This not only supports the community but also fosters a sense of purpose among employees. Alternatively, businesses can motivate their staff to organise charitable events or fundraising activities, creating a positive and collaborative workplace culture.

The essence of giving to charity extends beyond mere financial contributions - but it doesn’t hurt to ease the burden of tax liability where possible. If you’re interested in finding out how you can maximise your impact on your community through charitable giving while minimising your tax liability, get in touch with our team of experts today.


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