Contribution to NGOs in UK, Ireland and Romania
By Gabriela Alexandra Florea, Romania and Jesús Alamo Ascencio, Spain & EU
Last updated Tuesday, October 30, 2018
From companies to individuals, people from all walks of life are known to contribute money for a better future for all. One of the ways that encourage people to donate for good causes is paying lesser tax by contributing to charities and NGOs . The single most common reason cited for making donations to charity is ‘tax deductions’. This doesn’t mean you gain from giving the donation but rather you don’t pay tax on the money you gave away! Or it can mean that the tax you paid on such money is somewhat reduced, the actual cost of the donation received by the charity is reduced by your tax savings.
In UK, a limited company pay less Corporation Tax when it gives the following to charity:money, equipment or trading stock,land, property or shares, employees, sponsorship payments. There are different rules for sole traders and partnerships.
A charity in England and Wales is defined, by law, as an organisation which has exclusively charitable purposes, and is regulated by the High Court’s charity law jurisdiction. As part of this, charities must prove they exist for the public benefit. If an organisation meets these criteria it is, by definition, a charity, even if it is not registered with the Charity Commission. If an organisation does not meet these criteria then it is not a charity, can not register with the Charity Commission, and is not subject to charity regulation. “Charity” is not a legal structure in and of itself. Most charities adopt one of the following legal structures:Unincorporated association,Charitable trust,Charitable Incorporated Organisation (CIO),Company limited by guarantee, Charitable Community Benefit Society.
An unincorporated association is a membership organisation. It can be whatever its members want it to be, and carry out whatever activity the members choose. It can be a charity,but this is not mandatory. If your group is charitable, you will need to register with the Charity Commission if your annual income is over £5,000 per year. To set up an unincorporated association, your group simply needs to draw up a constitution, setting out the rules under which it will be run.
A charitable trust is a type of charity run by a small group of people known as trustees. A charitable trust is not incorporated, so it cannot enter into contracts or own property in its own right. To set up a trust your group must write and sign a trust deed, which must show that the organisation is legally charitable. Charitable Trusts must register with the Charity Commission if they have income over £5,000 per year.
Charitable Incorporated Organisation (CIO): The are two types of CIO: Association Model and Foundation Model. Association Model CIOs are membership organisations and hold elections, whereas Foundation Model CIOs are run by a small group of appointed trustees. CIOs must be registered with and report to the Charity Commission, regardless of their income.
Unincorporated charities such as unincorporated associations and charitable trusts can also become CIOs, but this involves setting up a new CIO, transferring all assets, then closing down the old organisation.
Company limited by guarantee: A company limited by guarantee is a type of company which does not distribute income to shareholders. This means it can be not-for-profit, if all surplus income is reinvested back into the organisation.
To establish a company, you must adopt a governing document called a Memorandum and Articles of Association, and submit it to Companies House.
Charitable Community Benefit Society: A company can be a charity if it meets the legal requirements required by charity law. This must be clear from the governing document, so if you wish to set up a charitable company you should use the model Memorandum and Articles of Association approved by the Charity Commission.
Establishing a charitable company involves registering with the Charity Commission as well as Companies House, and then submitting your annual report and accounts to both organisations annually.
If you are setting up a new organisation, it is worth considering whether a Charitable Incorporated Organisation (CIO) would suit your needs instead. CIOs do not need to report to Companies House.
A limited company can pay less Corporation Tax when it gives money to a charity or community amateur sports club (CASC)(what kind of charity,etc,non-profits,what is the price for set up to create ). Deduct the value of the donations from the total business profits before you pay tax.
You can’t deduct payments that are loans that will be repaid by the charity or are made on the condition that the charity will buy property from your company or anyone connected with it or are a distribution of company profits.
Any benefits you’re given in return for your donation must be below a certain value. So, for an donation amount up to 100 £, the maximum value of benefit should be 25% of the donation.Also, for a donation between 101 £ – 1,000 £, the maximum value of benefit should be 25 £. For a donation of 1,001 £ and over, the maximum value should be 5% of the donation, but up to a maximum of 2,500 £.This applies to benefits given to any person or company connected with the company, including close relatives.If you get a benefit that’s related to the company, donation qualifies as a sponsorship payment.
You can claim full capital allowanes on the cost of equipment. To qualify, the equipment must have been used by the company. This includes: office furniture,computers and printers, vans and cars, tools and machinery.
If the company donates it’s trading stock to a charity or CASC, you don’t have to include anything in your sales income for the value of the gifts.
Regarding to the land, property or shares the limited company could pay less Corporation Tax if it gives or sells any of the following to charity: land or property or shares in another company.
You can deduct any costs as normal business expenses if: the company temporarily transfers an employee to work for a charity (known as a ‘secondment’) an employee volunteers for a charity in work time.
The company must continue to pay the employee and run Pay As You Earn (PAYE) on their salary. You can set the costs (including wages and business expenses) against your taxable profits as if they were still working for you.
You can’t claim the costs of employees on secondment or volunteering at a community amateur sports club (CASC)
What qualifies: publicly supports your products or services, allows you to use their logo in your own printed material, allows you to sell your goods or services at their event or premises, links from their website to yours.
In Ireland, If you wish to establish or operate a charity there are a number of steps to take and matters to consider. Firstly, all charities must be included in the Register of Charities maintained by the Charities Regulatory Authority. Secondly,a charity can apply for charitable tax exemption,this is a separate process and can be completed using the Revenue Commissioners leaflet and application form. The third step is decideing which legal form to take a charity. E.g: Company Limited by Guarantee, Unincorporated Association, Charitable Trust etc.
You must clearly state in your governing document (Constitution etc.) your primary charitable purpose and your charitable objectives (the things that you are going to do), all of which must be in furtherance of your primary charitable purpose. There are also specific clauses relating to income & property that must be contained in your Constitution, regardless of your legal form.
It is the CRA that has responsibility for the registration and regulation of charities in Ireland. All charities in Ireland are now legally required to register with the CRA to receive their charity registration number-this is the number which identifies an organisation as a charity in the eyes of the law and the public.
regarding the reduction of taxes by donating to non-profit organisation, If a company makes a donation of over €250 in the year, the company can claim a tax deduction as if the donation was a trading expense.
The relief is calculated by grossing up the donation at the specified rate. The specified rate is currently 31%.
When a company makes a donation to a charity or approved body, it is the company that claims the relief. There is no grossing up arrangement in this case. To become an eligible charity for this scheme, you must be authorised in writing by Revenue. Charities Section will authorise charity if it was created for charitable purposes only or you only use your income for your main charitable purpose or even if you hold a charitable tax exemption (CHY Number) or a notice of determination (DCHY Number) for at least two years.
Approved bodies include: primary, second and third level institutions who have programmes approved by the Minister for Education and Skills, institutions that provide courses which are certified by Quality and Qualifications Ireland (QQI), institutes that are approved for Education in the Arts by the Minister for Finance and organisations that promote human rights as detailed under Section 209 Taxes Consolidation Act 1997.
In Romania,natural persons and legal persons pursuing activities in general interest or in the interest of local authorities or where appropriate, in their unpatrimony personal interest may constitute associations or foundations under the conditions of this order. An association or a foundation may be recognised by the Romanian Government as public utility, if the following conditions are meet: its work will be carried out in general or community interest, as an individual has been working for at least 3 years and has achieved some of the objectives set out, submit a report from which to carry out a significant previous activity by carrying out programmes or projects specific to its purpose, together with the balance sheets and budgets of revenue and expenditure for the last 3 years; the value of the patrimonial asset each year is at least equal to the value of the original patrimony.
The Association – is represented by a convention in which several people provide permanent resources, knowledge and workforce, and the main contribution is to support the activities of local, regional or international communities. In order to establish an association, there is a need for a relatively small patrimony worth at least a gross minimum wage on the economy, at the date of the association’s creation, which could be made up by the contribution in the nature or money of the associates. The foundation-is a restricted organisation than an association. The purpose of a foundation must be altruistic, well-determined, realistic and be of general or community interest. To set up a foundation you need a somewhat larger heritage, totaling at least 100 times the gross minimum wage on the foundation date.
Federation – It is very similar to the stock company being formed in its turn from other legal entities. In the case of the Federation, it must consist of at least 2 associations or foundations, retaining each legal personality.
Individuals can distribute up to 3.5% of the income tax to non-governmental organizations (NGOs). Companies can be much more generous: according to the tax code, they can donate amounts of up to 20% of the tax on profit, up to 3 per thousand of turnover.
In conclusion, surveys have proven that givers are happier than non-givers and in general we all like to feel we are making a contribution! In a time when we have so little control over many of our outgoings (taxes, mortgage payments, utility bills, etc.), charitable contributions are still something we can control, we decide when to give, how much to give, and who to give to!
Sources:
https://www.gov.uk/donating-to-charity;
https://www.taxback.com/blog/charitable-donations-ireland;
https://laurentiumihai.ro/ghid-infiintare-ong-asociatie-fundatie/;