Donations made to UK registered charities and some amateur sports clubs attract tax relief if they are made under gift aid. As you are a higher rate taxpayer this tax relief will take two forms.

Firstly, assuming you donated £2,000, the charities will be able to claim gift aid relief which will increase the donations to them by 25 pence for every £1 you have donated – this has the effect of increasing the total of the gifts to £2,500.

Secondly, if the donations are declared on your tax return, your total level of basic rate band will increase by the gross amount of the gifts (£2,500) meaning that you will pay less tax at your highest marginal rate.

Please note that if you are making a gift aid donation through your limited company, the taxes will not work in the same way as above.

As you can see the total tax owed after the charitable donations have been taken into account is £500 lower than if no donations had been made. This is due to a further £2,500 of income being taxed at 20% as opposed to 40%. This reduces the net cost of the donations to £1,500.

The gift aid donations should not be logged as an expense of your sole trader business but are entered in your personal tax return in the gift aid section.

You will need to keep records showing the date, the amount and which charities you’ve donated to.

If in the future you were to incorporate your business there are different rules and factors to consider regarding charitable giving.

Please note that if you have given a gift aid donation via your company, your axes will not work the same way as above.