Giving to Charity: What It Means for You (and Your Tax Bill)

Donating to charity feels good. Whether it’s helping the local hospice, sponsoring your mate’s marathon run, or supporting causes close to your heart, giving back has its rewards. But here’s the part many small business owners don’t always realise: giving to charity can also make a difference to your tax bill.

That’s right, HMRC doesn’t often hand out perks, but when it comes to charitable donations, they’re surprisingly generous. Let’s break down how it works for sole traders and limited companies, how Gift Aid comes into play, and what you need to watch out for.

How giving to charity works for sole traders

If you’re a sole trader or in a partnership, charitable donations are treated in the same way as if you were donating personally because your business and you are legally the same thing.

The most common method is through Gift Aid. If you’re a UK taxpayer and tick that box, the charity can claim an extra 25p for every £1 you donate. That means if you give £100, the charity gets £125.

But here’s the best bit: if you’re a higher-rate or additional-rate taxpayer, you can claim back the difference between the basic rate of tax (20%) and your rate of tax on the donation.

Example:

• You donate £100.

• The charity claims £25 back through Gift Aid, so they receive £125.

• If you’re a higher-rate taxpayer (40%), you can claim an extra £25 relief through your Self Assessment.

• If you’re an additional-rate taxpayer (45%), you can claim £31.25.

So that £100 donation could actually cost you as little as £68.75 while giving the charity £125. Not bad for ticking a box.

How giving to charity works for limited companies

Limited companies don’t use Gift Aid in quite the same way. Instead, donations to charity can be treated as a deductible expense when calculating taxable profits. That means the donation reduces the amount of Corporation Tax you have to pay.

Example:

• Your company makes £50,000 profit.

• Corporation Tax is 25%, so the bill would be £12,500.

• If the company donates £1,000 to a registered charity, profit falls to £49,000.

• Corporation Tax is then £12,250.

So your donation saves you £250 in tax — and the charity gets the full £1,000.

It’s worth noting that company donations can’t create a loss (so you can’t reduce taxable profit below zero), and they must be to a recognised UK charity.

Watch out for…

Not every donation qualifies for tax relief. Here are some of the common pitfalls:

• Political parties or individuals – donations here don’t count.

• Raffles, auctions, or ticketed events – buying a ticket isn’t a donation in HMRC’s eyes, even if it’s for charity.

• Non-UK charities – it has to be a recognised UK charity.

• No tax paid – if you’re not paying enough tax in the year to cover the Gift Aid element, HMRC may come after you for the difference.

If in doubt, check that the charity is registered and keep your paperwork.

What if your business raises money for charity?

Donating directly from business profits is one thing, but many businesses also like to raise money for charity through staff fundraisers, sponsored events, or even rounding up customer payments.

Here’s what you need to know:

• Money raised isn’t a business expense – If you collect donations from customers, employees, or the public, that money doesn’t belong to the business. It should be kept separate and passed on in full to the charity. You can’t deduct it from your profits for tax.

• Business costs around fundraising can be deductible – For example, if you print posters, hire a hall, or buy cakes for a charity bake sale, those costs can usually go through as a normal business expense (marketing, staff welfare, etc).

• PR benefits – Supporting a charity this way can still be great for staff morale and your reputation, even if the donations themselves don’t reduce your tax bill.

So while fundraising isn’t quite the same as making a corporate donation, it’s still valuable — both to the cause and to your business community.

Why bother beyond the tax?

Sure, the numbers are nice. Saving a bit on your tax bill while helping a good cause is a win-win. But it’s not just about the money. Charitable giving can:

• Boost staff morale if your business supports a cause.

• Strengthen your brand and reputation in the community.

• Simply make you feel good (yes, that counts as a benefit too).

In other words, it’s one of those rare times where your heart and your wallet can work together.

Final thoughts

Whether you’re a sole trader or running a limited company, donating to charity can benefit both you and the causes you care about.

• Sole traders – use Gift Aid, and remember to claim any extra relief if you’re a higher or additional-rate taxpayer.

• Limited companies – claim your donations against profits to reduce your Corporation Tax bill.

• Everyone – keep records, watch out for the exceptions, and don’t forget that donations have a value far beyond the taxman.

So the next time you’re thinking of giving, remember: it’s not just generous — it’s tax smart too.