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Gift Aid Donations To Charity

I want to make a donation to charity and would like to know whether it is more beneficial for me to make a donation to charity through my own limited company, or personally under the gift aid scheme. Can you advise on the tax implications?

Both individuals and companies can make donations to charity and receive tax relief on the donation. The way in which the relief is given varies, and the amount received depends on the rate at which the donor pays tax.

If you make the donation as an individual under the scheme, you make this net of basic rate tax. Basic rate tax is currently levied at 20%, so this means that if you are a basic rate tax payer and you make a donation of £10 under the Gift Aid scheme, it’s worth £12.50 to the charity.

If you pay tax at the higher rate of 40%, you can claim the difference between the higher rate of tax and the basic rate of tax on the gross value of your donation. This means that a £10 net donation to the charity made by a higher rate tax payer still gives the charity £12.50, but also results in a reduction to the donor's tax liability of £2.50, ie the total amount of £12.50 to the charity has a net cost to the higher rate tax payer of £7.50.

When a charitable donation is made by a limited company, the amount is paid gross. Therefore if the company donates £100, that is the total amount received by the charity.  The donation is deductible from the total profits of the business when calculating corporation tax. Small companies with profits up to £300,000 pay tax at 21%, so a donation of £100 will reduce the corporation tax liability by £21.

In order to make a Gift Aid donation you'll need to make a Gift Aid declaration. The charity will normally ask you to complete a simple form to confirm that you are eligible to make donations under the Gift Aid scheme.

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