Reply to: Charity payment from company funds

[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)

[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.

[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]

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%).

[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

[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]

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.

[TheCyclingProgrammer]

Sorry, why you think it is funny? I asked this for a reason. I know of a person who is ill and I would like to contribute some £££ for his healthcare. is there anything wrong/funny about it?

As has been pointed out - giving a donation to a registered charity is fine. Giving money to a friend to pay for their healthcare - not tax deductible.

[northernladuk]

You have also got to make sure you are not connected to the person/charity or gaining benefit from it in any way. Donating it to the local football club your son plays for won't wash etc.

Giving such a large chunk of your money looks extremely fishy IMO.

[TykeMerc]

You can't just give some person money (no matter how sick or deserving they are) and treat it as a business expense, I'm a bit boggled how you think it could be possible.

If the person is a registered charity then it would be possible, but that's not an expense, that's a donation to a charity which is allowable and reduces your taxable profit.

[eek]

Sorry, why you think it is funny? I asked this for a reason. I know of a person who is ill and I would like to contribute some £££ for his healthcare. is there anything wrong/funny about it?

Yep, you really shouldn't do it via the business. You can do it on a personal basis but the separate legal entity (your company) has to be treated as the emotionless professional legal entity it is supposed to be...

[computerguru]

The first bit was a reasonable enough question. That bit though,

Sorry, why you think it is funny? I asked this for a reason. I know of a person who is ill and I would like to contribute some £££ for his healthcare. is there anything wrong/funny about it?

[DimPrawn]

Company donation to a registered charity - charity loses out on Gift Aid.
Non registered charity (i.e. your mate) - just wrong on so many levels...


Good explanation here:
http://forums.contractoruk.com/accou...eductable.html

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

[DimPrawn]

https://www.gov.uk/tax-limited-compa...arity/overview

Basically it lowers your corporation tax as it reduces your profit if you donate via a LTD company.

[Goatfell]

Company donation to a registered charity - charity loses out on Gift Aid.
Non registered charity (i.e. your mate) - just wrong on so many levels...


Good explanation here:
http://forums.contractoruk.com/accou...eductable.html