Are Charitable Donations Tax-Deductible for UK Companies

Many UK companies choose to support good causes, whether through direct donations, sponsorships, staff fundraising or gifts in kind. Beyond the reputational and community benefits, there may also be financial advantages. In particular, company directors often ask whether charitable donations are tax-deductible.

In short, companies can claim tax relief on certain donations, but only if the right conditions are met. The type of donation, the recipient organisation, and how the donation is made all affect whether Corporation Tax relief is available.

This guide explains how charitable giving works for limited companies in the UK, how tax deductions are calculated, and what companies need to watch out for when offering charitable support.

How Charitable Donations Affect Corporation Tax

In the UK, companies pay Corporation Tax on their profits. However, if a company donates to a registered charity, the value of that donation can often be deducted from profits before tax is calculated. This means the donation reduces the company’s overall tax bill, provided certain conditions are satisfied.

This deduction applies to gross donations made during the company’s accounting period. The donation must be made wholly and exclusively for business purposes and cannot result in the company receiving a significant benefit in return.

Eligible Recipients

To qualify for Corporation Tax relief, donations must be made to an organisation recognised as a registered UK charity or a Community Amateur Sports Club (CASC). HMRC maintains a list of qualifying bodies. Donations to non-UK charities or informal community projects will not attract Corporation Tax relief.

It is important for companies to check that the recipient is properly registered and meets HMRC’s qualifying criteria. This is especially important for gifts of high value or part of a formal sponsorship deal.

What Types of Donations Are Tax-Deductible?

There are several ways a company can donate to charity and still benefit from Corporation Tax relief. Each has its own conditions.

1. Money donations
A straightforward donation of money is the most common method. Provided it goes to a qualifying charity and no significant benefit is received in return, the full amount is deductible from trading profits.

2. Gifts of equipment or trading stock
If a company donates physical goods, such as unused equipment, furniture, or stock, the cost of those items can usually be deducted as if they had been sold at nil value. The company must remove them from its balance sheet and account for VAT if applicable.

3. Sponsorship
Sponsorship is different from a donation. If the charity provides advertising, promotion, or publicity in return, the payment is classed as a business expense rather than a charitable donation. This is still deductible but must be declared as part of marketing or advertising costs, not as a donation.

4. Seconding employees
If staff are seconded to work with a charity and continue to be paid by the company, the salary and related costs remain deductible for Corporation Tax purposes. The employee’s time must be logged, and the arrangement documented.

5. Gifts of land, property or shares
Companies may also donate land, buildings or shares in another company. These types of donations are more complex, often requiring a deed of gift and formal valuation. Corporation Tax relief is available based on the market value, and Capital Gains Tax is not normally charged.

What Cannot Be Claimed as a Deduction

There are some common scenarios where no Corporation Tax deduction will be allowed:

• Donations to individuals or unregistered groups

• Donations where the company receives excessive benefits, such as expensive event tickets or sponsorship beyond fair market value

• Voluntary overtime or fundraising done by staff on their own time

• Costs not directly linked to the donation (e.g. admin fees or PR costs)

The company must not claim both a Corporation Tax deduction and treat the cost as a separate business expense. It is also not possible to deduct donations from trading income if the company makes a loss in the same accounting period. In this case, the relief may need to be carried forward to offset future profits.

VAT Considerations

VAT adds another layer of complexity. When donating goods or services, VAT may still apply depending on whether the company has recovered VAT on the original purchase and what kind of supply the charity receives in return.

For example, if a company donates trading stock, and has reclaimed VAT on it, output VAT may be due on the donation. Companies should review VAT Notice 701/1 and seek advice to ensure compliance.

Charitable sponsorships involving advertising are treated as taxable supplies, and normal VAT rules apply. This means the company may charge VAT on the sponsorship and reclaim any related VAT on expenses.

Reporting and Record Keeping

To claim Corporation Tax relief, the donation must be recorded properly in the company’s accounts and reported on the Company Tax Return (CT600). There is no separate form, but the donation must appear clearly in the accounts as a deduction from trading profits.

Companies should keep documentation for all charitable donations, including:

• Receipts or acknowledgements from the charity

• Details of what was donated and when

• Evidence that the charity is registered and eligible

• Copies of any agreements or contracts if sponsorship is involved

• Employee time logs or payroll records if secondments apply

Accurate records help ensure the company can justify the deduction if questioned by HMRC and avoid potential penalties for overclaiming.

Charitable Giving and Company Image

While the primary reason for charitable donations is usually to support causes that align with company values, there can also be brand and reputational benefits. Many companies include charitable support in their ESG (environmental, social, and governance) strategies or corporate social responsibility reports.

Tax relief is not the only benefit. Engaging with local charities, supporting staff volunteering, or building long-term charity partnerships can also boost staff morale and customer loyalty.

That said, any arrangement that appears transactional or commercial must be treated carefully for tax purposes. If the charity is promoting the business in return, the payment may no longer qualify as a donation and should instead be classed as advertising or sponsorship.

Conclusion

Charitable donations are tax-deductible for UK companies if they meet HMRC’s qualifying criteria. Cash donations, gifts of equipment, employee secondments and certain types of sponsorship can reduce Corporation Tax liability, provided they are given to a registered UK charity and no substantial benefit is received in return.

Limited companies should treat charitable giving with the same care as any other financial transaction. Clear documentation, accurate accounting treatment and a solid understanding of the tax rules will ensure that generosity is both rewarding and compliant.

Whether your company donates £100 or £100,000, understanding the tax treatment of charitable giving can help you support good causes while managing your finances wisely.