Charity Donations

Charity Donations

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Hi,

If a business has taxable profit of £10000 and owes £2000 in corp tax, the company has also made a qualifying charitable donation for £2000. Does this mean that the £2000 owed to HMRC is no longer payable? Or is this £2000 just treated as an allowable expense and reduces the taxable profit to £8000 and then instead the tax is calculated on this?

Thanks for your advise.

Replies (4)

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By aiwalters
13th Feb 2012 17:02

neither

it's actually a charge on earnings. However for all practical purposes, it will act as an expense such that it reduces profits. However it cannot create or increase a loss.

So in the OP's example, CT will be due on £8000.

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By khalm0
14th Feb 2012 09:30

That sounds more realistic to what someone was trying to tell me. i think if that was the case then HMRC would never recieve any money as everyone would probably rather pay to charity than to them!

 

Thanks for advise.

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By Sarah Newland
14th Feb 2012 09:57

Gift aid limit

 

....following on from this, is there a limit on the amount of gift aid a company can donate, so long as it doesnt create or increase a loss ?

 

Thanks

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By George Attazder
14th Feb 2012 12:49

Gift away

Sarah, a company can gift as much as it wants to charity.  Obviously, it can't gift what it doesn't have, and the directors need to be mindful of their fiduciary duties, but those are the only restrictions.

When aiwalters says that "it cannot create or increase a loss", he is referring to the practical effect of the donation as if it is a trading deduction.  As he says though, it is technically not a trading deduction and if the amount gifted exceeds the company's taxable profits, those profits will be reduced to nil, but no further tax relief will be obtained on the gift.

Relief is generally availaible only on the amount paid in the year.  Companies that are wholly-owned by a charity can get relief for payments made up to nine-months after the year-end though.

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