The benefits of donating unwanted IT equipment to charities

Save Money through Donating Equipment

Businesses can get tax relief if it makes a gift of equipment to a UK charity. You'll be able to reduce the taxable profits your business makes by the cost of the gift made so you'll pay less tax. This applies whether you're in business as a sole trader, a partnership or a company.

Gifts of equipment

If you're in business as a sole trader, a partnership or a company you can benefit from full capital allowances on the cost of equipment, plant or machinery that you give to a UK charity or CASC. You must have used the equipment in your normal business activities for it to qualify.

What are capital allowances?

When you buy an asset - like machinery (for example, motor vehicles or computers) - to use in your business, you can reduce your taxable profits by claiming capital allowances on the asset. Capital allowances let you deduct the cost of the assets you buy from your taxable income - meaning you pay less tax.

You can set part of the cost against your profits in the year when you buy the asset. You can then claim the rest of the cost over a number of years until the whole of the asset's cost has been covered.

You work out your capital allowances by taking a percentage of the cost that's left after you've claimed allowances for earlier years. But your total capital allowances can't be more than the asset cost you. If you sell an asset for more than the cost that hasn't been covered yet, you'll have to pay tax on a 'balancing charge'. This makes sure you can't get capital allowances on more than the asset cost you.

Example

A company has no assets to claim capital allowances for. In May 2005 it buys a computer for £5,000. In the first year it can set 40 per cent of the cost - £2,000 - against its taxable profits, leaving £3,000 of the cost to carry forward to next year.

In the second year, the business can claim 25 per cent of the remaining £3,000 cost - £750 - against its taxable profits, leaving £2,250 to carry forward to the third year.

In the third year, the business sells the computer for £2,500. As this is more than the remaining balance of the cost, the business has to pay tax on a 'balancing charge' of £250 that's added to its profits.

Capital allowances on gifts to charity

Normally, if the business gives away the computer in the above example, it has to treat the gift as a sale at its market value - £2,500. So it still has to pay tax on a balancing charge of £250.

But if the business gives the computer to a charity, it can treat the gift as having nil value. So instead of paying tax on a balancing charge of £250, it can set the unused cost of the computer (in the example, £2,500) against its taxable profits so the whole cost has been covered.

There's a new system of capital allowances for assets bought from April 2008 onwards. Businesses can claim an Annual Investment Allowance of up to £50,000 a year.

The special rules for giving equipment to charities continue to apply, so the gift will still be treated as having nil value. The business will carry on being able to claim capital allowances for the full cost.

 


 

Helpful Advice from those Friendly People at DOT-COMmunICaTions