A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
7.6 Using Gift Aid
How Gift Aid works for companies:
The Gift Aid concept: When a donation of money is made by a
company to a charity under the Gift Aid Scheme its taxable profits
are reduced by the same amount, and the charity is automatically
exempt from paying tax on the donation. This is a clear incentive
for giving money to charity, which works just as well for gifts by
individuals. And when the donation is made by a charity’s own
subsidiary trading organisation or a trading partner it becomes a
way for charities to carry out almost any form of trade without the
obligation to pay corporation tax on profits.
The basic arrangements: The following arrangements apply to
company donations to charities since 2000.
• Companies (and unincorporated associations) can claim tax
relief for qualifying donations to UK charities. Generally, relief for
Gift Aid donations is available in the accounting period during
which the donation is made, but there are special rules for
companies wholly owned by charities.
• Gift Aid donations made to UK charities by companies are paid
gross (inclusive of any tax they would otherwise have paid).
The donation is treated by the charity as an annual payment for
which an exemption from tax can be claimed.
• If a company deducts tax from a donation incorrectly, the
charity cannot reclaim the tax but must recover any shortfall
from the donor.
• Charities receiving Gift Aid donations from companies should
keep normal accounting records of donations received, for
inclusion in their accounts and tax return, as annual payments.
• For further information check with HM Revenue and Customs
(www.hmrc.gov.uk/charities/guidance-notes)
General tax treatment of companies making Gift Aid donations:
• When a company makes a qualifying donation to a charity it can
make a claim in its corporation tax self assessment (CTSA) return
to set the amount of the donation against its taxable profits.
• Charitable donations cannot be used to manipulate a company’s
trading losses, so there is no tax advantage in making a
donation which is greater than the taxable profit.
• The donor company should keep normal accounting records
of its donations including documentation to show the charity
received it.
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