Corporate munificence: beware

Using your private company to make charitable donations can be sensible and tax-efficient: donations are simply deducted in arriving at taxable profit, circumventing the administrative complexities of Gift Aid; and you avoid the inefficiency of making personal donations out of remuneration that has previously suffered NIC.

But what if you want to use your private company to distribute largesse other than to charities?

The first hurdle may be a legal one: dissentient shareholders or creditors may legitimately object if you disburse the assets of a company on a whim.  But in practice that difficulty may, for many private companies, be more theoretical than real.  Moving on…

The first potential tax problem is with inheritance tax (‘IHT’).  A gift made by a company is likely to be a ‘transfer of value’; and if the company is a ‘close company’ (broadly, under the control of five or fewer people) such a transfer of value is (in effect) treated as made proportionately by the shareholders.  Furthermore, such a deemed transfer is, in principle, immediately chargeable: unlike most actual transfers made by individuals, it cannot constitute a ‘potentially exempt transfer’.

The transfer of value is exempt if it’s made to a charity or, subject to some conditions, to a political party (conditions which weren’t, by the way, satisfied by UKIP in the case of Arron Banks [2021] EWCA Civ 1439).  Nor is there a charge to tax if the transfer is made with no gratuitous intent or if the amount transferred is deductible in computing the company’s profits or gains.  And the same applies to some dispositions in favour of certain trusts for employees.  But, subject to these provisions, a transfer of value by a close company can give rise to a charge on the shareholders.

In many cases IHT is not in practice a problem – or, at least, not an immediate problem – since the deemed transfer will often fall within the shareholder’s nil rate band.

But that may not be the end of it.

If you procure that your company transfers money or value to someone other than you, there may, depending on the circumstances, be income tax consequences to consider.

At one extreme, arranging for your company to make a cash gift to your granny for no better reason than that she is your granny will certainly result in a charge to income tax on you, on the grounds that the company’s ‘gift’ amounts to a redirection by you of either remuneration or dividend.  It will not be possible simply to ‘add back’ the cost in computing profits and leave it at that.

Trickier are payments made at the direction or behest of the owner of a private company where either the link to a company’s commercial interests is non-existent or the amounts excessive.  Payments, for example, to a pressure group dear to the owner’s heart but with no real demonstrable connection to the company; or to sponsor the owner’s favourite local sports team with a generosity that manifestly exceeds all commercial rationality.

Historically, the battleground with HMRC has tended to be only as to whether such expenditure is tax-deductible as having been incurred ‘wholly and exclusively’ for the purposes of the company’s business (see for example Interfish Ltd v HMRC [2014] EWCA Civ 876).  However, in cases where the motivation for the expenditure derives in reality not from the purposes of the company but from the will of an owner imposed, as it were, upon the company, some careful thought may need to be given to whether there is a risk that HMRC may regard the expenditure as a diversion of remuneration or dividend or (if neither) as giving rise to a charge under the ‘benefits in kind’ regime.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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