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bigduckontax
bigduckontax, Accountant
Category: Tax
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, I run a small (incorporated) web development and

Customer Question

Hello,
I run a small (incorporated) web development and online marketing consultancy and we provide certain services free of charge to a couple of charities.
Charity 1 gets:
a) Managed website hosting
b) Management of their Google AdWords pay-per-click advertising campaigns
c) Website management
Charity 2 gets:
b) Management of their Google AdWords pay-per-click advertising campaigns
a) We resell hosting to many of our clients, but always as a managed product - the client would be paying mostly for our time in fiddling with servers and dealing with the hosting company. The marginal cost to us of having another client's website on our server space is small because we've bought a big lump of cloud storage space and another client wouldn't fill that. If we charged charity 1 a commercial rate for their hosting it would probably be £400+VAT pa.
b) We would normally sell AdWords advice at the rate of £50+VAT per hour. Management of each charity's campaigns is a few hours a month.
c) Website management involves keeping the website (which we developed for them a few years ago) up and running with technical updates etc. Again, our commercial rate for this would be £50 per hour and no more than an hour or two a month usually.
We don't invoice any of these transactions, and they don't show in our accounts. We've never claimed any sort of tax reflief on any of these services or the construction of the website for charity 1 (a few thousand pounds worth of work). My question is would it make more sense for us to invoice the commercial value of these transactions and donate an equal amount to the charities? I'm guessing that it's too late to do that for transactions in previous years.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Here is the Gov UK web site advice on companies making charitable donations:
'2. Donating money
Your limited company can pay less Corporation Tax when it gives money to a charity or community amateur sports club (CASC).
Deduct the value of the donations from your total business profits before you pay tax.
Payments that don’t qualify
You can’t deduct payments that:
are loans that will be repaid by the charity
are made on the condition that the charity will buy property from your company or anyone connected with it
are a distribution of company profits (eg dividends)
If you’re given something in return
Any benefits you’re given in return for your donation (eg tickets to an event) must be below a certain value.
Donation amount Maximum value of benefit
Up to £100 25% of the donation
£101 - £1,000 £25
£1,001 and over 5% of the donation (up to a maximum of £2,500)
This applies to benefits given to any person or company connected with your company, including close relatives.'
So that's charitable giving by your company dealt with.
My advice would be not to invoice any of these charities for the benefit they receive, but to charge the cost of these buckshee capers as charitable donations. Makes the book keeping much simpler and avoids any VAT complications.
I do hope I have helped point you in the right direction.
Customer: replied 2 years ago.

Thanks Keith. Just to clarify, would there be any issues with HMRC where the service provided was simply time (i.e. the various management services provided)? And what do you think the double entry would be - debit charitable donations, credit what exactly?

Expert:  bigduckontax replied 2 years ago.
I would suggest Debit Donations, Credit say Computer elapsed time consumed or possibly Technical Services or something like that. What your are doing essentially is writing off sales against charitable donations. It all depends upon how you post sales within your organisation.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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