Corporate tax hike or fundraising opportunity?
As confirmed by the Chancellor Jeremy Hunt in yesterday’s budget, corporation tax will rise on 1 April. This isn’t just news for company CEOs and accountant, it presents an important opportunity for charity corporate fundraising. Charged on their profits, corporation tax is paid by both UK companies and foreign companies with UK offices. The tax is currently charged at 19% of profits but from next month will rise to 25%.
For small businesses – with profits less than £50,000 – the rate will remain at 19%. Rates will increase gradually for companies as their profits rise from £50,000 to £250,000.
Businesses can deduct money invested in IT equipment and machinery from the profits they pay corporation tax on, for the next three years.
Whilst the Treasury might be eyeing up increased tax takings, estimated at £20bn a year by 2027-8 by the OBR, charities should recognise the increased potential for tax effective corporate giving.
Companies that support charities – whether through money, equipment, land, property or sponsorship – can claim tax relief, thereby reducing their tax bill.
A company can set the value of its donation, whether given through pledged regular payments or a lump sum, against corporation tax liability. For a company paying corporate tax at 25%, the net cost of a donation worth £150,000, could be only £112,500.
Charities should beware if they’re giving companies benefits in return for their donation (for gifts over £1001 the maximum value of benefit should be 5%) otherwise they qualify as sponsorship.
As well as being exempt from capital gains tax, donations of shares (in another company), land and buildings, also allow companies to claim corporate tax relief on the current market value of the gift.
As already noted, charity sponsorship payments are different from donations because the company gets something related to the business in return. Sponsorship payments can be deducted from business profits before companies pay tax by treating them as business expenses.
So, what does this mean for charities and their corporate fundraising?
- Promote tax efficient corporate giving. Spell out the benefits for companies to their bottom line.
- Invest time in building relationships within companies. Ask your supporters and contacts who they know. Reach out to and engage decision makers.
- Target prospects carefully. Why should companies choose your company? How does your cause align with their objectives and values?
- Show how supporting your work can help companies meet their corporate social responsibility impact targets and generate engaging content.
- Think strategically, showing how working together over time delivers mutual benefits.
Craigmyle Fundraising Consultants provide wide-ranging fundraising and development services tohat are tailored to your charity. If you’d like to discuss how we might be able to help get in touch.