Did accountant make a mistake here with charitable donations?

[Karimbo]

Quite a few years back (2018), when my business was starting up. I made a small charitable donation through mty company to a funds fundraiser which is to a registered UK charity through justgiving.

CT computation below. I thouight charity donations are tax deductable expenses which is why I put it through the business. After this I just assumed it's not and just did it through mky own name personally and claimed gift aid as I was paying income tax.

All these years I just assumed charitable donations were not tax deductable expense after this incident. But recdently I read different. You can see on the computation below the accounted disallowed the £50 donatoion from the corpoation tax. Did they make a mistake? I just kept the donation receipt and noted the charity number and kept it as proof of chaityy payment.

Maybe I'm misreading this computation, to me it seems like it's a disalloable expense from company accounts and added back on for computing corporation tax.

I just need to get clairifaction for future reference,

 

[UK Contractor Accountant]

Company charity donations are an allowable expense for Corporation Tax but must be paid gross without tax being deducted at source.

Perhaps the Accountants thought it was a personal charity donation via Just Giving.

 

[Karimbo]

Company charity donations are an allowable expense for Corporation Tax but must be paid gross without tax being deducted at source.

Perhaps the Accountants thought it was a personal charity donation via Just Giving.

I see, so they asusmed it was a drawing and I was donating personally and getitng the gift aid.

They should have asked me because I didnt claim the gift aid and used my company name in the donation.

all drawings are posted in the accounts accordingly and I wouldn't have made that mistake of posting it as charity on the company accounts if I was drawing it and sending it to charity through my personal name.

The accountant wasn't very good. They were qualified and made a few other oversights the following year.

 

[Karimbo]

Company charity donations are an allowable expense for Corporation Tax but must be paid gross without tax being deducted at source.

Perhaps the Accountants thought it was a personal charity donation via Just Giving.

Also can you clarify the above.

I just donated through the public justgiving page, didn't tick gift aid and entered the organisation name. I presume tax at source = gift aid?

 

[Ziggy2024]

When computing profits the software that we use adds back donations which you then have to put back in as charges to income so potentially your accountant has missed the second part.

 

[DWS]

Agree with Ziggy your accountant was correct in that the donation should have been disallowed and added back to trading profits but it should have then been claimed under ‘Qualifying charitable donations’

 

[Baines Watson]

Quite a few years back (2018), when my business was starting up. I made a small charitable donation through mty company to a funds fundraiser which is to a registered UK charity through justgiving.

CT computation below. I thouight charity donations are tax deductable expenses which is why I put it through the business. After this I just assumed it's not and just did it through mky own name personally and claimed gift aid as I was paying income tax.

All these years I just assumed charitable donations were not tax deductable expense after this incident. But recdently I read different. You can see on the computation below the accounted disallowed the £50 donatoion from the corpoation tax. Did they make a mistake? I just kept the donation receipt and noted the charity number and kept it as proof of chaityy payment.

Maybe I'm misreading this computation, to me it seems like it's a disalloable expense from company accounts and added back on for computing corporation tax.

I just need to get clairifaction for future reference,

You can claim charitable donations as a deduction for your corporation tax bill so seems it has been an oversight on the return in this case.

However, an important consideration here is whether it is better to donate through the company or personally, donating personally can be more tax efficient for small business owners, I'll use your £50 donation as an example to illustrate:

1) Company Corporation Tax Relief = £50 x 19% = £9.5 (assuming small company rate applies)
2) Personal Tax Relief = £50 x1.25 x 20% = £12.5
3) Charity gets an extra £12.5 in case of personal contribution as gift aid whereas the company donation is not eligible for gift aid.

As shown above, it may be better to donate personally rather then through the company.

 

[Karimbo]

You can claim charitable donations as a deduction for your corporation tax bill so seems it has been an oversight on the return in this case.

However, an important consideration here is whether it is better to donate through the company or personally, donating personally can be more tax efficient for small business owners, I'll use your £50 donation as an example to illustrate:

1) Company Corporation Tax Relief = £50 x 19% = £9.5 (assuming small company rate applies)
2) Personal Tax Relief = £50 x1.25 x 20% = £12.5
3) Charity gets an extra £12.5 in case of personal contribution as gift aid whereas the company donation is not eligible for gift aid.

As shown above, it may be better to donate personally rather then through the company.

Thanks for that, was wondering which method has a better overall net benefit.

Also thanks all for contributing. The mistake is too far back and too little to bother with now. But I will bear this in mind if I do decide to pay through the company again (which I most liekly wont any more).

 

[David Griffiths]

But that calculation doesn't take into account any tax cost of getting the £50 out of the company so that it can be donated. Possibly PAYE and NIC, possibly dividend tax, but almost certainly some cost, (and no I can't be bothered to work it out!"

 

[Karimbo]

But that calculation doesn't take into account any tax cost of getting the £50 out of the company so that it can be donated. Possibly PAYE and NIC, possibly dividend tax, but almost certainly some cost, (and no I can't be bothered to work it out!"

I think it should really be a yes/no question of have you paid income tax this year, if so do gift aid. If you haven't paid income tax best option is to donate through companby.

Though I think whatever gift aid amount you are likely to claim, you need to have at leaat that amount of income tax paid.

 

[Baines Watson]

But that calculation doesn't take into account any tax cost of getting the £50 out of the company so that it can be donated. Possibly PAYE and NIC, possibly dividend tax, but almost certainly some cost, (and no I can't be bothered to work it out!"

Great point and yes if you consider those costs then it will be net tax relief of £3 if taken as PAYE when donating personally vs the £9.50 when donating through the company, I did work it out

Having said that, the charity will still be better off through personal donations rather then through the company.

I would assume the underlying reason most people make donations is to benefit the charitable cause they want to support and with that in mind it would be better to do it personally due to the gift aid element.

 

[David Griffiths]

But the individual is paying the donation from after tax income. If the company was to take the same view it could pay a donation of £61.72 to come back to an after tax cost of £50 at the small company rate.

All of which proves that there is almost no scenario where some awkward person says "Ah, but . . " particularly if they are a retired accountant with no work to do!

 

[Daybooks]

But the individual is paying the donation from after tax income. If the company was to take the same view it could pay a donation of £61.72 to come back to an after tax cost of £50 at the small company rate.

All of which proves that there is almost no scenario where some awkward person says "Ah, but . . " particularly if they are a retired accountant with no work to do!

They are almost chalk and cheese, but to the effect that the trader can influence the donation from either salary or company directly then with my trusty Casio FX-602P and the aid of Excel I offer the following:

£50 net take home pay converts to £69.44 gross allowing for 8% employee national insurance and 20% tax. This then converts to a cost of employment for the employer of £79.02 allowing for 13.8% employer national insurance.

Then of course it depends upon whether there is any corporation tax being saved at say 19%. The trader might be maximising salary to eliminate any corporation tax (low profits scenario). But on the margins (at 19%) there is a saving of £15.01. Thus the cost is £64.01 to the company to allow for £62.50 (£50 plus gift aid) to benefit the charity to come from the individual.

To make an equivalent donation from the company of a £62.50 gross receipt for the charity, would save, if applicable, £11.88 in corporation tax. A net cost of £50.62.

Exploring the dividend route to take out £50 a pre-tax profit of £61.72 is essentially being surrendered. In the hands of the individual there may or may not be tax payable on that and there may be the possibility that the individual has not paid enough tax in the qualifying period(s) to be entitled to gift aid.

Assuming I’ve done my maths correctly there are so many “ifs and buts” still.

No AI assistance used. I think it was re-sitting the examinations anyway!

E&OE