Charity Donations & Sponsorship - What Can My Business Claim?
Why This Is Confusing
Businesses often support local causes, charities, or community events. However, HMRC treats sponsorship, advertising, and charitable donations very differently for tax.
Calling something a “donation” or an “advertising cost” does not decide the tax treatment. What matters is why the payment was made and what the business received in return.
Sponsorship (Advertising & Promotion)
Sponsorship is usually treated as an allowable business expense — but only where there is a clear commercial benefit.
When sponsorship is allowable
- Your business name or logo is displayed
- You receive advertising, promotion, or online links
- The payment helps attract customers or raise awareness
Examples:
- Logo on a local sports team kit
- “Sponsored by XYZ Ltd” on a website or programme
- Social media promotion in return for payment
Tax treatment:
- Recorded as advertising or marketing
- Deductible for tax
- VAT reclaimable (if a VAT invoice is provided)
Donations to Registered Charities
Donations made with no advertising or business benefit are treated as charitable donations, not business expenses.
Limited Companies
- Not deductible as a trading expense
- Must be added back in the corporation tax computation
- Claimed separately as a Qualifying Charitable Donation
This still gives corporation tax relief, but outside the profit and loss account.
Important:
- The charity must be UK-registered
- The donation must be made with no benefit in return
- Companies do not use Gift Aid
Sole Traders & Individuals
- Not a business expense
- Claimed personally through Gift Aid
- Higher-rate relief claimed via Self Assessment
Thank You Gifts
The "Benefit" Limit: You can receive small "thank you" gifts without the donation being considered a sponsorship (something in return), but they must not exceed these values:
- Donations up to £100: Max benefit 25% of donation.
- Donations £101 – £1,000: Max benefit is £25.
- Over £1,000: Max benefit is 5% (capped at £2,500).
Donations to Other Causes (Non-Registered Charities)
Payments to non-registered charities, community causes, or individuals are not automatically tax-relievable.
If there is no advertising
- Not allowable
- No tax relief
- Treated as drawings (sole trader) or disallowed expense (company)
If there is advertising or promotion
The payment may be treated as sponsorship instead.
- Allowable as advertising
- Deductible for tax
- VAT reclaimable (if applicable)
Mixed Payments - Donation or Advertising?
Some payments feel like a donation but include a small amount of promotion. HMRC looks at the main purpose of the payment.
| Situation | Likely Treatment |
|---|---|
| Clear branding and promotion | Advertising (allowable) |
| Thank-you mention only | Usually a donation |
| Personal or family connection | Often disallowed |
| Business exposure is the main reason | Advertising |
Advanced Scenarios: Stock & Local Teams
Donating Stock or Equipment
Donating physical items can be very tax-efficient for a business.
- Trading Stock: If you donate items you usually sell, you don't have to include the value in your sales income. This effectively gives you tax relief on the cost of the stock.
- Equipment: If you donate used equipment (like office laptops or vans), you can claim full Capital Allowances on the cost.
Sponsoring Local Teams (The "Duality" Trap)
HMRC is very strict when a business sponsors a team or individual with a personal connection (e.g., a director's child's football team).
- "Wholly & Exclusively": For the cost to be allowable, it must be for business promotion, not personal support.
- The Test: Would you still sponsor the team if your relative wasn't involved? If there is "duality of purpose," HMRC may disallow the entire expense.
- Evidence: Keep photos of branding on kits and signage to prove the marketing benefit.
Common Mistakes We See
- Calling donations “advertising” with no evidence
- Sponsoring a family member’s activity with no promotion
- Claiming VAT on donations
- Limited companies using Gift Aid
- Sole traders putting donations through the profit and loss account
Simple Decision Test
Ask yourself:
- Is the recipient a registered charity?
- Is there genuine advertising or promotion?
- Would the business pay this without the publicity?
If the answer to question 3 is no, it is unlikely to be an allowable expense.
In Plain English
“If you're paying for publicity, it's advertising. If you're giving money with nothing in return, it's a donation. Advertising reduces profits — donations reduce tax, but differently.”
This guide does not provide specific tax advice or guidance related to your individual circumstances.