A charitable donation by a company is an expense in the profit and loss account, usually within administrative or other operating expenses, not a distribution of profit. Goods or equipment given away are written off at their carrying amount. For tax, a cash gift is added back in the trading computation and deducted instead as a qualifying charitable donation from total profits, and only when it is actually paid.
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Where does a cash donation go in the accounts?
The company is giving away resources and receiving nothing that qualifies as an asset, so the payment is an expense. Most small and medium companies include it in administrative expenses; a company with a significant giving programme may show it as a separate line or in a note. FRS 102 paragraph 5.9A requires material items of income or expense to have their nature and amount disclosed separately, either on the face of the income statement or in the notes, and paragraph 1AC.32 requires small companies to state the amount and nature of individual items of exceptional size or incidence. A one off donation that is large relative to profit can trigger both.
A donation is not a dividend, even if the directors think of it as sharing the company’s profits. It goes through profit or loss before tax, and it does not need distributable reserves in the way a dividend does. Sponsorship is different: HMRC’s guidance on company giving explains that where the charity gives the company something related to its business in return, such as publicity or use of its logo, the payment is a sponsorship payment, deductible as a normal business expense. Classify the payment by what was agreed, not by what the charity calls it. See sponsorship and VAT.
When should a donation be recognised?
Normally when it is paid. A board decision to give money next year does not create a liability. FRS 102 paragraph 2.39 describes an obligation as a duty the entity has no practical ability to avoid, which can arise from a contract or from a constructive obligation created by published policies or specific statements. Paragraph 21.6 makes the same point for provisions: obligations arising from the entity’s future actions do not count, however likely they are.
So a signed, unconditional commitment to a charity before the year end, or a public pledge the charity has relied on, should be accrued at the year end. An internal budget line or an intention minuted by the directors should not. See accruals and prepayments for the mechanics.
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How are gifts of stock and equipment recorded?
Stock. FRS 102 paragraph 13.20A says that when inventories held for distribution at no or nominal consideration are distributed, their carrying amount is recognised as an expense. Credit stock and debit donations, or cost of sales if the company prefers to keep the gift within gross margin and disclose it. For tax, section 105 of the Corporation Tax Act 2009 means a trading company that gives a charity an article it makes or sells does not have to bring any amount into account as a receipt, so the cost of the stock is relieved. HMRC’s guidance adds that a VAT registered company must account for VAT on items it gives away, but may zero rate them where the gift is made so the charity can sell, hire out or export them. See gifts of trading stock to charity.
Equipment. Paragraph 17.27 requires an item of property, plant and equipment to be derecognised on disposal, and paragraph 17.30 measures the loss as net proceeds, here nil, less the carrying amount. Debit loss on disposal (or donations), debit accumulated depreciation, credit cost. HMRC’s guidance on capital allowances when you sell an asset says a disposal value does not need to be brought in when the asset is given to a charity or community amateur sports club, so the company keeps the allowances already claimed.
Staff time. If employees are seconded to a charity, or volunteer in work time, their pay stays in staff costs. HMRC’s guidance says the costs remain deductible as normal business expenses, with PAYE run as usual. Nothing extra is posted.
How is the tax computation affected?
Section 189 of the Corporation Tax Act 2010 allows qualifying charitable donations as a deduction from the company’s total profits, after other reliefs except group relief, limited to the amount that reduces taxable total profits to nil. Section 190(2) says a payment that is already deductible in computing any component of total profits cannot also be a qualifying charitable donation, which is why the accounts expense is added back in the trading computation and deducted lower down instead.
Section 191 sets the conditions for a cash payment: it must be a sum of money, not subject to repayment, made by a company that is not itself a charity, and not disqualified under the rules on associated acquisitions, distributions or benefits. HMRC’s guidance gives the benefit limits: for donations up to £100, 25% of the donation; for £101 to £1,000, £25; for £1,001 and over, 5% of the donation up to a maximum of £2,500.
Timing is where accounts and tax part company. Section 189(4) allows a deduction only for donations made in the accounting period. An accrued but unpaid pledge is an expense in the accounts but receives relief only in the period it is paid. The exception in section 199 is for a company wholly owned by a charity, which can claim to treat a payment made within nine months after the period end as made in that period. HMRC’s guidance also confirms that donations above profits cannot create a loss or be carried forward. The broader relief rules are covered in company donations to charity.
What does an example look like?
Illustration only. A company with a 31 March year end has profit before donations of £100,000. During the year it pays £5,000 to a local hospice. In March it signs an unconditional agreement to give a food bank £2,000, which is paid in May. It also gives a registered charity laptops with a carrying amount of £800.
| Item | Accounts £ | Tax treatment |
|---|---|---|
| Hospice donation paid | 5,000 expense | Added back, then deducted as a qualifying charitable donation this year |
| Food bank pledge accrued | 2,000 expense | Added back this year, relieved next year when paid |
| Laptops given away | 800 loss on disposal | Added back as a disposal loss; no disposal value for capital allowances |
| Profit before tax | 92,200 |
Taxable total profits are £100,000 less the £5,000 qualifying donation, so £95,000, before any capital allowances. The £2,000 reduces the following year’s profits instead.
What needs to be disclosed?
The directors’ report no longer has to state charitable donations. Paragraph 5 of Schedule 7 to the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008, which required it, was omitted by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. Political donations are still covered: paragraph 3 requires the directors’ report to give details where political donations and expenditure in the year exceed £2,000 in total. Take care with gifts to organisations that campaign; see political donations disclosure.
Related party rules can also apply. FRS 102 paragraph 33.2(b)(vi) treats an entity as a related party if it is controlled or jointly controlled by a person who controls the company, has significant influence over it or is key management personnel. A charity controlled by a director or their family may therefore be a related party, and paragraph 1AC.35 brings the related party transaction disclosures into small company accounts. Paragraph 33.4(a) confirms that a shared director on its own does not make two entities related, so a director who is simply one of many trustees is a matter for judgement. See related party disclosures.
What mistakes come up most often?
- Booking a donation through reserves. It is an expense, not a distribution.
- Claiming relief on an accrual. Only payments made in the period qualify, unless the company is wholly owned by a charity.
- Deducting it twice. Leaving the donation in trading profits and also claiming it as a qualifying charitable donation.
- Treating sponsorship as a donation, or the other way round.
- Ignoring benefits in return. Tickets or hospitality above the limits disqualify the payment.
- Forgetting VAT on donated stock where the zero rate does not apply.
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Related Accountapedia entries
- Company donations to charity: getting tax relief
- Accounting for grants made by a charity
- Recording dividends in the accounts
- Charitable company or CIO: which structure
- Are grants and donations subject to VAT
Sources
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- GOV.UK: Print
- legislation.gov.uk: Act 2009 c. 4, section 105
- GOV.UK: Capital allowances sell asset
- legislation.gov.uk: Act 2010 c. 4, section 189
- legislation.gov.uk: Act 2010 c. 4, section 190
- legislation.gov.uk: Act 2010 c. 4, section 191
- legislation.gov.uk: Act 2010 c. 4, section 199
- legislation.gov.uk: SI 2008/410, schedule 7
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.