Charitable donations more than profits: can a company carry the relief forward?
Short version. Qualifying charitable donation relief can reduce a company's taxable profits to nil. The relief left over is usually lost. If the company has an investment business and made the donations for that business's purposes, eligible unused donation relief is carried forward as management expenses.
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1. Why donation relief stops at nil
Corporation Tax relief applies to qualifying payments made in the accounting period. It comes after other reliefs except group relief. CT600 box 305 reports the deduction used, not necessarily the full payment. The deduction cannot exceed profits before donations in box 300 or create a tax loss.
For example, a company gives £5,000 to a qualifying charity and has £3,000 profits before donation relief. It uses £3,000 in box 305 and shows nil taxable total profits in box 315. The remaining £2,000 is unused donation relief. For a company without the investment-business exception, that relief is lost. It cannot be carried back.
2. When unused relief joins the management expense pool
CTA 2009 section 1223 covers qualifying donations made for the purposes of the company's investment business, to the extent relief cannot be used because profits are insufficient. The company's business can consist wholly or partly of making investments. A company can trade and have an investment business at the same time.
When these conditions are met, carry-forward is automatic. It is not an election to postpone relief. In the example above, eligible unused relief of £2,000 joins the management expense pool. It does not go in CT600 box 850, which reports unrelieved current management expenses.
3. How the pool reduces later profits
The investment business must continue in the receiving period. Exclude amounts already used or surrendered as group relief. The donation component is excluded from group relief for carried-forward losses. Loss restrictions and the company deductions allowance may limit the deduction. See HMRC's complete carry-forward conditions.
For periods starting on or after 1 April 2017, using the brought-forward pool requires a claim. You can claim all, part or none of the available amount. The claim is normally due within two years after the end of the period receiving the deduction, unless HMRC allows longer. For periods starting before 1 April 2017, the deduction is mandatory and takes priority. Leave the optional claim field blank for those earlier periods.
4. Can relief reduce the second return in the same filing?
Yes. Accounts covering more than 12 months usually need two Corporation Tax returns. A donation belongs to the return covering its payment date, rather than being divided by days. Eligible unused relief from return 1 joins the pool brought forward into return 2. It can reduce return 2's taxable profits and the overall tax bill, subject to the later-use conditions.
Check both returns' donation deductions and management claims. Use the final return's closing pool for the next period. Adding both closing balances would count relief twice.
5. Common mistakes and entering the treatment
- Treating the donation as a loss. Only the available donation deduction reduces profits.
- Assuming every company can carry unused relief forward. The investment business and the donation's purpose both matter.
- Choosing Not carried forward to delay relief when the conditions are met. For periods starting on or after 1 April 2017, control later use through the claim instead.
- Assigning a donation to whichever return gives the lowest tax. Use the return covering when it was paid.
In the filing wizard, Unused donation relief appears below a positive current Charitable donations amount, after the donation split panel for a long period. With no non-zero management figures, leaving the choices blank means Not carried forward. Entering investment management figures applies carry-forward automatically and retains your saved answer. Follow the management expense entry guide and the charitable donation guide.
The wizard's treatment answer applies to all unused donation relief. It does not separately allocate the investment-business purpose of a mixed-purpose donation. This is general guidance. Use your prepared figures and seek tax advice if you need to decide how a particular donation qualifies.