There are a variety of ways of giving to charity, some of which are more tax-efficient than others. Here is a short round-up of some of the possibilities.
For company directors, consider making the charitable gift out of the company if the alternative is to make the payment out of your after-tax income. This will allow the company to claim Corporation Tax (CT) relief as a deduction against profits and will, in effect, save the employer’s and employee’s National Insurance Contributions on the payment. Note, however, that there will be no additional recovery of tax by the charity (by the grossing-up of the gift) as there can be in the case of payments made by individual taxpayers.
Remember that to qualify as a charitable donation a gift by a business must be a gift of cash. Gifting non-cash assets or the value of services will not qualify for relief against CT and might in some circumstances have VAT implications. There are a number of more technical exclusions also, so if a proposed gift is part of a larger arrangement of any sort, take advice.
For individuals, gifts of money to charity qualify for income tax relief. Normally, the gift is deemed to have had basic rate tax deducted and additional relief is available for higher rate taxpayers by way of a claim on the giver’s tax return. The charity will reclaim the basic rate tax directly if the appropriate documentation is filled out, confirming that the donor is a UK taxpayer.
Gifts to charity in a will attract full Inheritance Tax relief at (currently) 40 per cent. There are pros and cons of either making gifts as a bequest of a specific sum or as a percentage of the residual estate, so if you are considering putting a substantial charitable bequest in your will, it is worth taking professional advice.