I've been considering making charitable donations through my company instead of my personal funds recently, as it appears more efficient from my calcs. By this, I mean the charity can receive the same amount at a lower cost to my take-home pay, or equivalently I can pay more to the charity at the same cost to my take home pay.
I'm trying to validate this, but can't find any articles with a clear answer as to which is better. There are some old threads on this forum around the question - where some people conclude that personal contributions are more efficient. However nobody has outlined their calculations in detail, and I disagree with their logic as I don't think they're considering the full picture. I don't want to drag up 2-year old threads, so I'll outline my thoughts with a full example. Please let me know if I'm making any errors or wrong assumptions here.
The example below is for a contractor donating what they can from £100 worth of company income, assuming a limited company structure earning under £300k, and with most of their income from dividends. I'm showing scenarios for basic rate and higher rate taxpayers separately.
Basic rate taxpayer
Paying from company
£100 donated in full to charity. No corporation tax is due on this amount
Charity receives £100
Net cost to contractor is what they would have received had the kept the money:
£100 * (1 - [20% corp tax]) * (1 - [7.5% dividend tax])
= £100 * 80% * 92.5%
= £74
Paying from personal funds
£74 donated to charity - as per above calcs this is what remains from the £100 company earnings after corp tax and dividend taxes
Charity claims 25% gift aid
Charity receives £92.5
Net cost to contractor: £74
Winner: Company paying. For a cost of £74 to the contractors take home pay, the charity receives £100 via the company route vs £92.5 via the personal route
#################################################
Higher rate taxpayer
Paying from company
£100 donated in full to charity. No corporation tax is due on this amount
Charity receives £100
Net cost to contractor is what they would have received had the kept the money:
£100 * (1 - [20% corp tax]) * (1 - [32.5% dividend tax])
= £100 * 80% * 67.5%
= £54
Paying from personal funds
£54 donated to charity - as per above calcs this is what remains after taxes
Charity claims 25% gift aid, and receives £67.5
Contractor can claim back from HMRC an additional 20% of the £67.5 amount the charity receives, based on the difference between basic and higher tax rate, i.e. they claim £13.50
Contractor donates this £13.50 to the charity
Charity receives a final total of £81
Net cost to contractor: £54
Winner: Company paying. For a cost of £54 to the contractors take home pay, the charity receives £100 via the company route vs £81 via the personal route
I'm trying to validate this, but can't find any articles with a clear answer as to which is better. There are some old threads on this forum around the question - where some people conclude that personal contributions are more efficient. However nobody has outlined their calculations in detail, and I disagree with their logic as I don't think they're considering the full picture. I don't want to drag up 2-year old threads, so I'll outline my thoughts with a full example. Please let me know if I'm making any errors or wrong assumptions here.
The example below is for a contractor donating what they can from £100 worth of company income, assuming a limited company structure earning under £300k, and with most of their income from dividends. I'm showing scenarios for basic rate and higher rate taxpayers separately.
Basic rate taxpayer
Paying from company
£100 donated in full to charity. No corporation tax is due on this amount
Charity receives £100
Net cost to contractor is what they would have received had the kept the money:
£100 * (1 - [20% corp tax]) * (1 - [7.5% dividend tax])
= £100 * 80% * 92.5%
= £74
Paying from personal funds
£74 donated to charity - as per above calcs this is what remains from the £100 company earnings after corp tax and dividend taxes
Charity claims 25% gift aid
Charity receives £92.5
Net cost to contractor: £74
Winner: Company paying. For a cost of £74 to the contractors take home pay, the charity receives £100 via the company route vs £92.5 via the personal route
#################################################
Higher rate taxpayer
Paying from company
£100 donated in full to charity. No corporation tax is due on this amount
Charity receives £100
Net cost to contractor is what they would have received had the kept the money:
£100 * (1 - [20% corp tax]) * (1 - [32.5% dividend tax])
= £100 * 80% * 67.5%
= £54
Paying from personal funds
£54 donated to charity - as per above calcs this is what remains after taxes
Charity claims 25% gift aid, and receives £67.5
Contractor can claim back from HMRC an additional 20% of the £67.5 amount the charity receives, based on the difference between basic and higher tax rate, i.e. they claim £13.50
Contractor donates this £13.50 to the charity
Charity receives a final total of £81
Net cost to contractor: £54
Winner: Company paying. For a cost of £54 to the contractors take home pay, the charity receives £100 via the company route vs £81 via the personal route
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