How To Record a Donation or Charitable Contribution for Bookkeeping in the UK

Donating to a charity is an inherently noble act that serves to increase the total amount of goodness in the world while helping impoverished individuals or people living in inhumane conditions. However, the main objective of any business is to generate profits.

From a purely economic standpoint, giving away resources is an action that is counterproductive to the operations of the company. It is no surprise then that nearly every government in the world has enacted laws or programs to stimulate and encourage businesses to be more charitable. In most cases, the money, goods, or services provided to the charity can be deducted from the company’s taxes.

In order to achieve the maximum benefits from the donation or charitable contribution, businesses must ensure that all related transactions are recorded and filed correctly, submitted on time, and that any mandatory requirements are met. Any deficiencies in the bookkeeping of the donation could lead to missed opportunities and less recognized deductibles.

To avoid such outcomes, it may be necessary to consult with expert accountants that operate within the applicable jurisdiction. Businesses from the UK should look for suitable firms such as reputable accountants in London to handle the financial records and the preparation of the necessary documentation.

Different Types Of Donations

Under UK law, there are different types of donations that can be recognized as applicable for tax relief. Furthermore, the rules also change based on the entity making the donation. As such, there are significant differences if the donation is coming from an individual, a sole trader, and a partnership, or if it is a limited company. Various factors are also influenced by the specific donation, such as the proper way to submit the tax relief or deductibles.

It should also be noted that businesses are not obliged to give donations only in monetary form. If there is a surplus of specific equipment such as office chairs, computer systems, tools, etc., the extra items can be given away, and capital gains allowance claimed against their value. Items produced or sold by the business also fall in this category. Land plots and properties are a form of donation as well. Companies can deduct the estimated market value from their profits, thus reducing the amount of owed Corporation Tax.

Although it may sound strange, the business’ employees may also be considered a donation. Known as ‘secondment,’ it involves companies temporarily transferring an employee to work for a chosen charity. This donation can still be claimed as a business expense. Secondment is applicable even when the employee volunteers for a charity in their work time. Keep in mind that the company must continue paying the involved employees during the duration of the commitment.

Assure Compliance

Numerous parameters are defined within strict thresholds, and compliance with the law is of utmost importance. This is where a professional account’s expertise could prove invaluable, as the records of the donations and their inclusion in the company’s bookkeeping must be exact. For example, you cannot deduct monetary payments that are loans to be repaid by the charity, that come with a commitment from the charity to buy products from the company, or that are distributed as company profits (dividends).

Furthermore, any benefits received in return must be below a certain specified value ranging from 25% of the donation when the total donated amount is less than £100 to 5% (or a maximum of £2,500) when the donated funds surpass £1,001.

When it comes to giving away land or property, it is necessary to obtain a letter of certification from the recipient charity. The document must include:

A description of the land or property.The date of the gift.A statement that the charity is now considered to be the new owner.In turn, donating shares must be accompanied by a stock transfer form that indicates the number of shares taken out of the company’s name and given to the charity. Tax relief may still be claimed even in cases where the charity asks the company to sell the intended donation on its behalf.

Keep Detailed Records

All donations must be backed by detailed documentation to be claimed as tax relief successfully. The related records typically have to be preserved for at least 22 months counted from the end of the applicable tax year. The specific documents vary depending on the type of donation.