Charity donations and waiving income during the Coronavirus (Covid-19) pandemic has been more prevalent in order to support others and their business.
HMRC are keen to support these moves and tax implications need to be considered. This applies whether you are self employed, a director, an employee or a shareholder.
What does waiving mean?
A director or employee can choose to waive their income before they are paid.
This means that the director or employee choose to give up their rights to remuneration and gets nothing in return.
There are no Income Tax or National Insurance Contributions (NIC) implications on the amount given up (waived).
However, if amounts are waived on the condition that the amount is donated to a particular charity then Income tax would still be due at the usual applicable rate you pay.
A shareholder can choose to waive their right to be paid a dividend.
For this to happen the company must formally execute a Deed of Waiver before the right to receive a dividend arises.
In respect of Final dividends – before they are formally declared and approved by the shareholders.
In respect of Interim dividends – before the dividends are paid.
What is payroll giving?
Payroll giving is giving to charity without paying Income Tax on it through the Pay As You Earn (PAYE) scheme from your wages or pension.
An employer will need to operate a Payroll Giving Scheme in order to be able to donate from your wages or pension.
The donated amount will be deducted before any Income Tax is deducted from your income.
The net costs to a UK taxpayer for every £1 donated are:
- 80p for a basic rate taxpayer
- 60p for a higher rate taxpayer
- 55p for an additional rate taxpayer
What is Gift Aid?
This applies if you donate to an eligible charity. The charity can claim back the basic rate Income Tax that you would have paid on the donated amount.
What if I am self employed?
Any charitable donations that are made can be claimed through the Self Assessment tax return by completing the charitable giving section in order to obtain tax relief at the appropriate rate.
You have four years to claim Income Tax relief from HMRC, after the end of the year to which your claim relates.
The above information is obviously very brief and for more detailed guidance we can assist you.
If you wish to speak to a member of our team please contact us.
If you require any assistance or further information regarding the charity donations or waiving income please contact us. A member of our team will be happy to help.