In the period leading up to the General Election you may ask us whether your personal company can make a donation to a political party. This is permitted, but the donation is not tax deductible for the company. However, the donation doesn’t create a taxable benefit in kind for the director or shareholders.
Where the political donation exceeds £500 it will have to be separately reported by the recipient Party, which may attract adverse publicity. All political donations made by the same source must be aggregated within a calendar year, so the £500 threshold can’t be avoided by making several smaller donations spread over the year.
Where the company pays for, or contributes to, a campaign which is wholly relevant to its trade, the expense may be tax deductible. For example, a campaign to relax the alcohol licensing laws would be tax deductible for a brewery. Donations made to a collective publicity scheme organised by say the local town council, would be tax deductible (see BIM47435).
A company can make charitable donations, and those amounts are generally deductible from the company’s profits in the year the donation is made. However, the deduction for a charitable donation can’t turn a profit into a loss, so the maximum donation the company can make is the extent of its taxable profits. Any excess donation which is not set against the company’s profits in the year it is paid can’t be carried over to a later year, so the tax relief for the excess is lost.
A company may also donate goods, or the services of its staff by seconding them to work for or on behalf of the charity. When giving away stock the company should not include the value as a sale for CT purposes, but the VAT on the item must be accounted for as if the item was sold. However, the VAT rate applied to the donated items is at zero percent, not the normal rate. This allows the company to reclaim VAT on the stock it has donated to charity.