Charity payment from company funds

[d000hg]

It should be noted that taking a dividend and then using this to make a charitable donation personally causes your tax allowances to be increased accordingly (actually slightly more and there are limits) so you will not be penalised in terms of income tax for doing this.

[eek]

It should be noted that taking a dividend and then using this to make a charitable donation personally causes your tax allowances to be increased accordingly (actually slightly more and there are limits) so you will not be penalised in terms of income tax for doing this.

only if the donation is to a registered charity....

[d000hg]

only if the donation is to a registered charity....

Yes but we already covered that. If they're not registered, they're not a charity

[Contreras]

Charity doesn't need gift aid, as company donates gross, there is no tax to pay on LTD donating to registered charity.

Yes. But...

It should be noted that taking a dividend and then using this to make a charitable donation personally causes your tax allowances to be increased accordingly (actually slightly more and there are limits) so you will not be penalised in terms of income tax for doing this.

I believe it's marginally more efficient to do this. ^^

Might be something to do with difference between corp. tax (20%) and additional rate on dividends (22.5%).

[Forbes Young]

Yes. But...



I believe it's marginally more efficient to do this. ^^

Might be something to do with difference between corp. tax (20%) and additional rate on dividends (22.5%).

To take a dividend you need to pay corporation tax beforehand on pre-tax company profits eg profits are £2,000, less CT = £400 = £1600 to take as a dividend. If the £1600 was paid personally to a Registered Charity the Tax Relief would be the the same as that derived from the taxable dividend income so no tax to pay on the £1600 received. If the company pays directly, then the £1600 is allowable for corporation tax, so profit would be £400 & corporation tax payable would be £80, leaving £320 to take as a dividend. So for the Higher Rate Tax Payer its better for the company to pay directly.

[Contreras]

To take a dividend you need to pay corporation tax beforehand on pre-tax company profits eg profits are £2,000, less CT = £400 = £1600 to take as a dividend. If the £1600 was paid personally to a Registered Charity the Tax Relief would be the the same as that derived from the taxable dividend income so no tax to pay on the £1600 received. If the company pays directly, then the £1600 is allowable for corporation tax, so profit would be £400 & corporation tax payable would be £80, leaving £320 to take as a dividend. So for the Higher Rate Tax Payer its better for the company to pay directly.

Are you comparing like with like there? To match the amount received by the charity (after relief) the company would need to contribute £2k.

Instead, if £1600 dividend is paid from post-tax profit and made as a personal contribution the charity still receives £2k (after relief) and it still effectively costs the company £2k. However, basic rate allowance is increased and a £1800 further dividends can be taken before high rate tax, thus saving the contractor 22.5% on £200 worth of dividends.

So I think for the Higher Rate Tax Payer its better to gift-aid personally, up to the limit of tax paid (including the notional 10% tax on dividends).

Happy to stand corrected if that's wrong.

[jjdarg]

Are you comparing like with like there? To match the amount received by the charity (after relief) the company would need to contribute £2k.

Instead, if £1600 dividend is paid from post-tax profit and made as a personal contribution the charity still receives £2k (after relief) and it still effectively costs the company £2k. However, basic rate allowance is increased and a £1800 further dividends can be taken before high rate tax, thus saving the contractor 22.5% on £200 worth of dividends.

So I think for the Higher Rate Tax Payer its better to gift-aid personally, up to the limit of tax paid (including the notional 10% tax on dividends).

Happy to stand corrected if that's wrong.

But if you choose not to use Gift Aid as a personal donor, don't you get the increase in taxable allowance, and not the charity? Wouldn't that affect the calculations? Almost everything I see never mentions this, but it must be a provision?

Just thinking about this myself. (Gift aid or not to gift aid, and how to do it...not thinking about donating to a worthy individual)