I've given to charity - is this a business expense?

In the UK, as a sole trader, you are taxed on the profits of your business. To calculate your taxable profits, you can deduct allowable business expenses from your total income.

Allowable business expenses are costs that are exclusively for the purposes of your trade or profession. Generally, charitable donations are not considered a business expense unless you can prove that the donation was made wholly and exclusively for the purposes of the trade. This is often difficult to demonstrate as charitable donations are typically seen as made out of generosity rather than for direct business benefit.

However, there are some instances where a donation can be an allowable expense:

1. Sponsorship Payments: If you receive something in return for your donation, like advertisement or promotion of your business, it can be considered a business expense.

2. Charitable Events: If you’re hosting a charitable event or fundraising as part of your business activity, some costs associated with the event may be deductible.

If you're a UK tax-payer, you could potentially claim Gift Aid on any charitable donation, which allows the charity to claim 25% on top of your donation from the government, or if you are a higher-rate taxpayer, you could claim back the difference between the basic rate of tax and the higher rate of tax on the donation.

These are the rules for sole traders and personal giving and correct at the time of writing this blog.

Written by Robert Webb - Gazelle Accountancy