Why giving to charity benefits everyone…
15 January 2016
There are far-reaching benefits of donating money, assets and time to charitable causes. Many people like to feel that they are doing what they can to help others. Alternatively, some causes become close to people’s hearts and they get the bit between their teeth to help these charities to raise much-needed funds. There is also a growing trend for companies to build in Corporate Social Responsibility policies for their staff, which can often supplement or assist those who wish to use some of their time and efforts to raise money for or help charities.
Whether the funds raised support research, running costs or the purchase of equipment, there is no doubt that charities benefit massively from the support of regular donors.
But what about the donor? Arguably, no one would wish to admit that they are making a donation to charity in order to seek a personal benefit. However, the UK tax system lends itself to providing relief to those who are generous enough to give to charity in the first place. How relief is obtained depends on the nature of the gift, as well as who is making the donation:
The simplest of the reliefs available is Gift Aid. Essentially this applies to all UK resident, individual (non-corporate) taxpayers. Where such individuals give money to charities registered within the Gift Aid scheme the donation is ‘grossed up’ for tax purposes. This means that the charity will receive more cash and the donor will be entitled to income tax relief.
If we take the example of a £1,000 cash donation to a registered charity by a higher rate (40%) taxpayer the relief and benefits can be broken down as follows:
Donation made £1,000
Amount charity receives £1,250
Tax relief for donor £250
In reality, this means that a £1,000 donation will only cost the donor £750, but the charity will receive £1,250, all thanks to the Gift Aid scheme.
Companies will also pay less tax when they make donations to charity. This is because the cost of making the donation will usually be tax deductible for the company. Qualifying donations include:
- Equipment or trading stock (items it makes or sells);
- land, property or shares in another company (shares in your own company don’t qualify);
- Employees (on secondment);
- Sponsorship payments.
Employers and staff
These days, it’s also very easy to make donations to charity straight out of gross employment income. This can be extremely tax efficient, especially for higher earners. As the donation is made before any tax is deducted at source, employees who give to charity in this way will automatically pay less tax on their earnings. This means that they do not have to wait to claim the additional tax saving through their tax return.
The relief available depends on the rate of tax payable by the employee. Every £100 donated will cost:
- £80 for basic rate taxpayers;
- £60 for higher rate taxpayers;
- £55 for top rate taxpayers;
The difference represents the tax saving, meaning that a top rate taxpayer will save £45 for every £100 donated via payroll giving.
- Donating to charity not only helps great causes (such as Breast Cancer Now) but it can be tax efficient for the donor;
- Tax relief is available to individuals and businesses, irrespective of the type of gift made to charity. Whether a donation is made up of cash, time or assets, tax relief will be available.
- Employers can make savings by allowing their staff to do more for charity. As well as fulfilling any corporate responsibility scheme you may have in place, by encouraging employees to contribute via payroll giving schemes, both the individuals and the company can achieve tax savings.
The tax specialists at DTE provide advice to a wide range of clients, including companies, trusts, charities, and individuals.
Author: Kirsty MacDonald – Senior Tax Manager
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