Each week we are sharing details on how to make your business more tax-efficient to help with the increasing burden of tax. This week, we’re discussing making charitable donations.

Making charitable donations not only allows you to contribute to a meaningful cause but it is also tax-deductible, saving you tax. This includes donations made under Gift Aid, which allows charities to reclaim tax on donations made by taxpayers.

Here are some key points to consider when incorporating charitable donations into your tax strategy.

Donation Concept. The Volunteer Giving a Donate Box

Choose recognised charities

Ensure that the charities you donate to are registered and recognised by tax authorities. Only donations to eligible charitable organisations qualify for tax deductions. Most reputable charities will have a charity registration number which you can verify.

Use Gift Aid for added benefits

Opting for Gift Aid can significantly boost the impact of your donations. Gift Aid allows charities to reclaim 25p every time an eligible taxpayer donates £1, at no extra cost to the donor. This means that a £100 donation with Gift Aid becomes £125 for the charity. To use Gift Aid, you need to make a declaration that you are a taxpayer and that you want the charity to claim back the tax.

If you are a higher rate tax payer it does benefit you personally too. You can include the donations on your personal tax return meaning it extends the amount of income you can pay tax at basic rate on thus giving you additional relief against your income. Also, for every £2 of gross Gift Aid donations you can restore £1 of your tax-free allowance.

Keep detailed records

Maintain accurate records of all your charitable contributions, including receipts and confirmation of Gift Aid declarations. These records will be crucial when claiming deductions on your tax return. Without proper documentation, you may not be able to prove the legitimacy of your donations.

Understand the limits

While charitable donations offer tax advantages, there are limits to the deductions you can claim. In most cases, you can deduct up to a certain percentage of your adjusted net income. Speak to your accountant so you’re aware of the specific rules and regulations to ensure compliance.

Timing matters

Be mindful of the timing of your donations. The end of tax year, 5th April, is just around the corner. Making charitable contributions before the end of the tax year can ensure that you benefit from deductions in the current filing period.

Integrating charitable donations into your tax strategy not only supports causes you care about but also offers a range of tax benefits. By understanding the rules, maximising the impact of your donations through programs like Gift Aid, and keeping meticulous records, you can create a tax-efficient giving plan that aligns with both your financial goals and philanthropic values.

There is always so much to consider with tax planning. One strategy could save you tax now, but cost you more in the future. So it’s always best to reach out and speak to a specialist, like us.  Speak to one of our PAs or book a free 1-2-1 by emailing enquiries@a4g-llp.co.uk.

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