Why it’s beneficial as a business owner to give generously
Ahead of Valentine’s Day this Thursday, Informi, the online portal offering free expert advice for small businesses, is calling on small business owners to consider how much they and their business gift to charities – and highlighted the many benefits to them of doing so.
With just 2% of all UK charity income currently coming from the business sector, and small and medium-sized enterprises (SMEs) making up over 99% of all businesses in the UK, Informi urges small business owners to lead the charge in incorporating charitable giving within their business planning, even if they have not started trading yet. There are 5.7 million SMEs in the UK, and annual charitable giving in total currently stands at £10.3 billion.
Informi has identified five great advantages as to why charitable giving should be at the heart of business thinking:
- Customers – who are ultimately every business’ bread-and-butter if they wish to survive and thrive – increasingly have a strong social conscience, and want to spend with brands that align with their own values. Two in three businesses that regularly gift have seen noticeable positive impacts on their profitability.
- Staff are more likely to be recruited and retained. If your business has employees, or is likely to in the future, it can be a great recruitment tool that the business has a strong charitable ethos. They’re also more likely to talk proudly about who they work for, which in itself proves a useful marketing tool. Over four in five workers would be more loyal to a company that helps them contribute to social and environmental issues.
- From a reputation perspective, visibly incorporating charitable giving ticks one major box. Engaging with CSR initiatives gives businesses extra credibility and ensures that you are giving something back. Nearly nine in ten businesses said corporate responsibility activity had a positive impact on their company’s reputation.
- There are various tax advantages (listed in greater detail below) associated with businesses giving to charity, whereby businesses can claim the tax back in the form of a refund against tax on their profits. Businesses with a clear ‘Brand Purpose’ grew three times faster in value on average between 2005-2017.
- The charity itself, of course, is the main beneficiary. You and your business have free rein as to which charities you choose to support, and therefore it is often causes closest to your heart who benefit from your charitable giving schemes. Announcing the charities your business has chosen to support at any given time gives them additional free publicity, which provides an extra benefit. 90 per cent of consumers said they would switch brands to support a specific cause when choosing between two brands of equal quality.
What types of tax advantage are available through charitable giving, for me and my business?
For individuals, Gift Aid is a tax relief allowing UK charities to claim 25% in tax on every eligible donation. When a person gives they’ll be asked to confirm if they are a UK taxpayer. Higher-rate taxpayers can claim income tax relief, above and beyond the amount claimed directly by the charity. Gift Aid can only be claimed by individuals who have paid as much in income, or capital gains, tax during the tax year concerned as the amount of tax which is recoverable.
Employers can help employees gift via payroll giving to their chosen charities should they wish. One million people give money every month via over 5,000 employers currently, though the numbers have remained broadly the same for several years.
Businesses can make donations from their sales or profits. Such donations are deductible from the business’ total profits in the year during which the donations are made. The amount of the tax allowable deduction is limited to an amount that reduces the company’s total taxable profits to nil: the payment of a charitable donation cannot create or augment a company’s loss for tax purposes.
There are therefore challenges with donations in this way, as Informi’s Steven Drew picks up:
“Donations by businesses are offset against their profits, meaning that they can pay less corporation tax. If, however, you aren’t profitable, you cannot access this tax relief. We’d like to see cash giving incentivised, either through increasing the rate of tax relief on donations made so that the tax refund outweighs that of general business expenses, or through using a tax credit approach, so that businesses who are not in profit are also motivated to give.”
Aside from donating business profits, there’s plenty of other existing routes for businesses to engage with charities – such as through volunteering, through pro bono work, giving product in kind, or via matching donations for one off occasions such as Comic Relief or having a designated charity of the year.
Setting up a CPA
Publicly pledging to make charitable donations linked to sales of goods and services can be great for business, as discussed above. However in order to do so you have a legal obligation to set up a Commercial Participation Agreement (CPA) with every charity you intend to support. These exist to help protect charities’ brands from being inappropriately leveraged by businesses for their own financial gain without the charity’s consent.
CPAs have been seen as a hassle from an administrative and legal perspective. It often therefore results in charities setting minimum thresholds for business pledges – putting off many potential partnerships between charities and smaller businesses.
Danny Witter is Co-founder of Work For Good, a organisation which helps businesses design and execute strong giving strategies. This has included creating an online platform which facilitates charitable payments and handles the legal, tax and admin issues associated with a CPA – with no minimum donation amount. Members include a restaurant that has a ‘giving table’ from which the profit of every meal goes to good causes; a consultancy that gives 3% of every invoice to a charity of the client’s choice, and a recruitment firm which incentivises referrals via a donation pledge.
Danny explains why charitable giving can be a key part of business growth – and how Work for Good can help.
“Embedding cash giving pledges into your day to day can be good for businesses and charities alike. It is a visible and transparent way to engage your customers and staff, and make giving part of your brand. With 89% of clients willing to switch brands to support a specific cause it pays to be seen to be doing good.
“It can also be a more efficient means of giving back. Unlike training for a marathon or setting up fundraising events – both time-consuming and reliant on external input – pledging a cash donation is quick and easy.
“However, a CPA can be a real barrier to charitable giving. Charities regularly turn away offers of business support if it is below surprisingly high thresholds – typically £25,000 a year or more – as they aren’t viable due to the negotiations, legal and admin work involved. Even with the biggest of hearts few smaller businesses can reach that.
“Work for Good’s central philosophy has been not only to make it easier for businesses to incorporate charitable giving into their business plans, but also to help businesses tell their giving story to differentiate themselves and to inspire others.”