Key Take aways on Business and Corporate Tax Benefits!

More detail on Tax-Efficient Giving for Corporate Partner

What is a Tax-Efficient Donation?

A tax-efficient donation is a contribution that an organisation makes to our charity, which reduces the amount of tax they have to pay. This means the organisation gets a financial benefit while also supporting us.

How Can an Organisation Make a Tax-Efficient Donation?

There are several ways an organisation can make a tax-efficient donation:

Cash Donations

What it is: The organisation gives money directly to NI Hospice.

How it benefits them: The donation amount can usually be deducted from their taxable income. This means they reduce their overall profit figure on which tax is calculated, resulting in less tax to pay.

Donating Goods or Services (In-Kind Donations)

What it is: Instead of giving money, the organisation donates products, equipment, or services.

How it benefits them: The market value of the goods or services donated can often be claimed as a business expense, reducing their taxable income.

**It is very important that any gifts in kind are reported to supporter care who will record the donation and its equivalent value on the donor’s constituent record.

Sponsorship

What it is: The organisation funds a specific event, project, or activity run by NI Hospice, often in exchange for some form of acknowledgment (like logo placement or mentions).

How it benefits them: Sponsorship is usually treated as a business expense, which reduces their taxable profits.

**All sponsorship VAT invoices should be raised by the marketing team via the finance department

Payroll Giving

What it is: The organisation sets up a scheme where employees can donate directly from their salaries before tax is deducted.

How it benefits them: This makes it easier for employees to donate, often resulting in higher donation totals. The organisation may also match employee donations, increasing goodwill and employee engagement.

Sponsorship

Sponsorship in the context of UK and Northern Ireland (NI) based charities involves a business (the sponsor) providing money or benefits in kind to the charity in exchange for certain promotional activities or rights. The arrangement differs from straightforward charitable donations because it typically involves a benefit to the sponsor, such as advertising, branding, or publicity. Here’s how it works for both the organisation (sponsor) and the charity, including VAT considerations:

For the Sponsoring Organisation:

Tax Treatment: Sponsorship payments are considered a business expense, so the organisation can deduct the amount paid from its taxable profits, reducing its corporation tax liability. This is because the sponsorship is seen as a commercial arrangement rather than a charitable donation, as the business receives something in return (e.g., advertising or publicity).

Benefits: The sponsor gains promotional benefits like brand visibility, public recognition, and association with a positive cause, all of which can enhance the business’s public image and potentially attract customers.

For the Charity:

VAT Considerations:

VAT Liability: Unlike a pure donation, where no goods or services are provided in return, sponsorship is considered a taxable supply. This means that the charity is required to charge VAT on the sponsorship payment at the standard rate (currently 20% in the UK) NI Hospice is VAT registered.

Charity's Responsibilities:

Issuing VAT Invoices: The charity must issue a VAT invoice to the sponsoring organisation, detailing the sponsorship amount and the VAT charged.

Paying VAT to HMRC: The charity must then pay the VAT collected from the sponsor to HM Revenue & Customs (HMRC) as part of its regular VAT returns.

Reclaiming VAT: If the charity is VAT-registered, it can reclaim VAT on certain purchases related to its taxable activities, including those related to the sponsorship deal.

Example Scenario:

NI Hospice agrees with a company to sponsor an event for £10,000. As we are VAT registered, we would charge £10,000 plus 20% VAT, totalling £12,000. The company would pay the £12,000, of which £2,000 is VAT that the charity must then pass on to HMRC. The charity would keep £10,000 as income.

Benefits to the Organisation

Here’s why making tax-efficient donations is attractive to organisations:

Tax Savings

By reducing their taxable income, organisations pay less tax, which improves their financial standing.

Depending on the size of the donation, they could save a significant percentage of the donation amount.

Corporate Social Responsibility (CSR)

Organisations are often keen to demonstrate their commitment to social causes. Donating to charity enhances their reputation as a socially responsible business, which can attract customers, investors, and top talent.

Brand Visibility

If the donation is in the form of sponsorship, the organisation gets visibility and positive publicity, which can be valuable marketing.

Employee Engagement

Programs like payroll giving can boost morale and employee engagement. Employees feel good about working for a company that supports good causes, which can lead to higher job satisfaction and retention.

How to Encourage Tax-Efficient Giving

To make it easier for organisations to donate tax-efficiently to NI Hospice:

Highlight the Tax Benefits: Make sure potential donors understand the tax savings they can achieve.

Provide Clear Documentation: Ensure you provide receipts and documentation needed for their tax returns.

Offer Various Giving Options: Flexibility in how they can give (cash, goods, services, sponsorship, payroll giving) makes it easier for organisations to support us.