Tax Relief on Charitable Donations in the UK
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Giving money to charity doesn’t just help a good cause, it could help reduce your tax bill. Whether you are self-employed, running a small business, or are a higher-rate taxpayer, donating to eligible charities in the UK can reward you generously with tax relief.
In this article, we will explain how tax relief works on charitable donations in the UK.
What Counts as a Charitable Donation?
In the UK, donations to HMRC-recognised charities or community amateur sports clubs (CASCs) qualify for tax relief. As an individual, sole trader or partnership, the main ways to donate include:
- Cash, card, cheque, or direct debit payments
- Donations through a Payroll Giving scheme, taken from your salary or pension
- Gifts of shares or securities
- Transfers of land or property
- Donated goods from your trading stock (with VAT considerations to bear in mind)
To qualify, the donation needs to be freely given. If you receive a significant benefit in return, HMRC may treat it as sponsorship rather than a donation.
Gift Aid Explained
Gift Aid lets charities and CASCs reclaim the basic rate of tax on your donation. It doesn’t cost you any extra, but it enables the charity to claim an additional 25p for every £1 you donate. For example:
- You donate £80 to a charity
- The charity claims £20 from HMRC
- The charity receives £100 in total
If you are a higher-rate or additional-rate taxpayer, you can claim extra tax relief through your Self Assessment return. For a £100 gift:
- A higher-rate taxpayer can reclaim £20, so the net cost falls to £80.
- An additional-rate taxpayer can reclaim more, making the net cost lower.
In both instances, the charity will keep the full £100 donation. You must keep a record of your Gift Aid declarations and donations and then claim any higher-rate element on your tax return.
Tax Relief for Businesses on Charitable Donations
Tax relief on charitable donations for businesses is slightly different. Businesses can usually deduct qualifying donations from profits before Corporation Tax is calculated. This includes cash gifts, equipment, stock, or land.
Sponsorship, however, is different. If your company receives publicity or marketing value in return for your support, HMRC may treat this as a sponsorship rather than a pure donation. This is still allowed, but is classified as a business expense instead.
VAT will also need to be considered. Donating items from your trading stock may trigger output VAT, although input VAT is normally dealt with in the usual way.
If you are setting up a new business and are unsure whether to register as a sole trader or limited company, your choice will have implications for your tax rates and business benefits.
Payroll Giving
Payroll Giving allows employees to make charitable donations straight from their gross pay, so the tax saving happens immediately.
- Employees see a lower net cost without having to wait to complete a tax return.
- Employers can offer this as a company benefit that supports corporate social responsibility (CSR) and employee morale.
Unlike Gift Aid, higher-rate and additional-rate tax relief happens at source. This keeps the process straightforward and the admin light for taxpayers who pay above the basic rate.
Practical Examples
Sole trader donating £500
A donor gives £500 with Gift Aid. The charity claims an extra £125, so it receives £625. If the donor pays higher-rate tax, they can reclaim £125 through Self Assessment. This makes the net cost £375, while the charity still receives the full £625.Limited company making a corporate gift
A York-based company donates £2,000 to a registered charity and deducts this from its profits. At the current main Corporation Tax rate of 25%, the donation saves £500 in tax, while the charity receives the full £2,000.Why Work with Mollan & Co?
Clear, personal advice matters when you are balancing business goals with charitable giving. At Mollan & Co, we will map out your options, keep your records in order, and help you claim what you are entitled to. That covers Gift Aid, company donations, VAT questions, and the higher-rate tax claims that people often miss.
Our York-based team has more than 40 years of experience. We work with contractors, landlords, and SME directors across the UK, giving our clients a dedicated accountant and practical, tailored guidance.
Make the most of your charitable donations
Want tailored tax advice that helps you give generously and stay tax efficient? Contact us today.
Author ProfileI'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.
I developed valuable skills in commercialisation through my work in the science and technology department at the Scottish University. Then, in 2002, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.
I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.
Our success at Mollan & Co is directly related to the success of our clients.
