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Business Tax Deductions and Community Contributions

By: Jennie Kermode - Updated: 12 Apr 2013 | comments*Discuss
Business Tax Community Gift Aid

There are all sorts of good reasons to contribute to your local community. You can gain customer loyalty, you can improve the local economy, you can create a more pleasant working environment and you can generally improve the quality of life for everybody. But if that's not enough for you, you should be aware that you can also save money directly. Through gift aid and other business tax reduction schemes, it's possible for the average small business to claim back thousands of pounds of tax per year. This is one of the ways in which the government seeks to support charitable donations and local business enterprise. So make sure that you understand how these tax relief schemes work and that you're in a position to take advantage of them.

Donations to Charity

Whilst a business cannot profit out of making donations to charities, it can, if they are properly registered, effectively make them for free. This occurs because charity donations can be written off against tax through the Gift Aid scheme, reducing the overall amount of business tax chargeable. To do this, all you need to do is to keep the paperwork associated with the donation, such as thank you letters, and submit it with your usual accounts at the end of the year.

If you have old business equipment to get rid of, donating it to charity can be a great way of reclaiming money. When you donate such an item, so long as it is used in the normal running of your business, you can reclaim the original cost of it against tax. However all claims against tax in relation to charitable donations must be made in the same tax year, and they cannot be added to a trading loss and carried over, so this is only financially useful to your business if you're going to make a profit.

Community Investment Tax Relief

As well as support for making charity donations, there are schemes available to reward investment in your local community directly, at least if your community is considered to be disadvantaged. These investments are focused on the long term and must be made for a duration of five years at a time through bodies called CDFIs (Community Development Finance Institutions), which in turn award money to local development projects. When your business invests in a CDFI it is entitled to tax relief amounting to 25% of the amount invested for each of the five years. It should still pay tax as normal over the course of the year, but it will receive the relief when its end of year corporation tax return is processed. The CDFI will supply a certificate of investment which should accompany the tax return.

CDFIs exist to fund risky projects, so they don't always succeed or even survive. Since you can't get the tax relief if you insist on securities on your investment, it's a good idea to consult a financial adviser before choosing which CDFI to trust with your money. You can obtain a list of accredited CDFIs in your area, with details of their activities, from the Department for Business, Enterprise and Regulatory Reform.

Business tax relief schemes are frequently subject to emendation so it's important to double-check the rules with your local tax office before you base major decisions on them.

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