This is part of our Tax & Accounting at Christmas Special. Christmas is a time for giving. Many folk across the world make gifts at special times of the year and in this guide we are looking at the tax rules surrounding gifts to registered charities.
Many religious institutions such as a church, mosque or synagogue are set up as charities. Charities come in all shapes and sizes and the same rules for gifting also apply to community amateur sports clubs.
Gifts can be made by individuals or their businesses, the rules vary according to the giver.
In order to achieve special tax status, charitable gifts must be made to a registered charity or community amateur sports club (CASC).
If a body is not a registered charity etc. your gift will be treated as if it is a different kind of gift, this could be one which is allowed or not allowed for tax, depending on the nature of the gift and the recipient.
Accounting by businesses
Companies and partnerships
- Gifts to charities are normally shown in their own separate account on your nominal ledger.
Sole traders
- Money gifts to charities are shown as drawings in your accounts.
- You could set up a sub-account for charities, as if you are a taxpayer you will need to retain this information for self-assessment.
Tax and charitable gifts
Business gifts to charities etc
The cost of the provision of a business gift is allowable when made to:
- A charity
- The Historic Buildings and Monuments Commission for England
- The Trustees of the National Heritage Memorial Fund.
A gift could amount to a donation of stock, your services or staff time.
Cash donations to charity or CASCs
- A cash donation is not a business gift, and so without special rules a gift of cash to a charity will not be tax deductible under first principles as cash is not "wholly or exclusively" made for the purposes of the business.
- An individual who is a UK taxpayer may make a Gift Aid declaration in order to allow the recipient of their cash to claim tax relief under the Gift Aid scheme by way of a refund (providing that it has registered with HMRC for Gift Aid).
- If the individual is a higher rate tax payer, they will receive tax relief on their gift.
- See Gift Aid.
- A company will obtain tax relief on a cash donation as a deduction from profits and there are similar conditions which apply as for Gift Aid.
Gift Aid and non-taxpayers
- Non-taxpayers should be careful not sign a Gift Aid declaration in respect of a donation to a charity or CASC otherwise they will be accountable to HMRC for the tax relief claimed back by the recipient.
- Charities may claim tax relief on donations made under the Gift Aid Small Donations scheme. If you are a non-taxpayer and you wish to make charitable donations and still allow your chosen charities to claim tax credits on your gift you will need to make small donations into collecting tins, if the charity is registered for the Gift Aid Small Donations scheme and such a facility is available. This is not a practical way to donate more than a few pounds at a time.
Inheritance tax and charitable giving
- A lifetime donation or a bequest by will to a charity is exempt from IHT.
- A charity may prefer to receive a lifetime donation under Gift Aid because it can reclaim basic rate tax on the gift made.
See IHT: relief on bequests by will for a worked example.
Links
For more detail on Gifts to Charities see our Gift Aid pages (freeview)
