You asked, so I’ll answer – Can social enterprises accept donations?
Yes, social enterprises can accept donations. Their treatment depends on the legal structure the social enterprise has and where the donations came from (individuals or businesses) and whether the donation is money, services, goods or other items.
Types of donations
Money is the most common type of donation received by social enterprises. If you are set up as a charity (or a CASC – Community Amateur Sports Club) then you ideally want to claim Gift Aid on the donation. Depending on the value of the donations you receive – you can either automatically claim Gift Aid through the Small Donations Scheme which enables charities to claim Gift Aid on up to £8,000 of small donations without recording details of the individuals donating. What this means in reality, is you claim 25% on cash donations or contactless card donations of £20 or less, up to a maximum of £8,000 of donations.
For larger donations the individual needs to complete a Gift Aid declaration form, and you have to record each donation separately to claim the additional 25% from HMRC. For example, a donation of £1,000 is worth £1,250 to the charity providing they claim the Gift Aid.
Charities do not pay tax on their income, and that includes any donations they receive. It also has benefits for the donor if they are a higher rate tax payers as it extends the amount of income that is taxed at the basic rate, so they can claim this via their personal tax return. Where the donor is a business/company the charity can’t claim Gift Aid on the donation, and the business/company treats the donation as allowable expenditure which reduces their tax liability.
All other organisations treat donations as income, and this is potentially taxable, depending on the organisation’s overall financial position and legal structure. Some organisations apply to HMRC to be recognised as not trading or operating as a not for profit, which means that HMRC usually agrees to some forms of income being treated as non-taxable. If you don’t receive this exemption, which is at the discretion of HMRC, then any donations received will be taxed if you have a surplus/profit. For the business/company donating providing they aren’t receiving any benefit in return the donation is deductible as an expense which will reduce their taxable profits. For individuals donating to social enterprises (that aren’t charities) there are no additional tax benefits.
In-kind donations – such as volunteer time – are the next most common type of donation. With these they aren’t usually recorded as income for the organisation – although you may mention the monetary value of this type of donation in the written report part of your financial statements.
Goods, donated items and services – usually the donation of these types of items is recorded at the cost to the organisation/business donating these. The organisation receiving the goods or services should record these as income at their market value providing a value can be obtained with reasonable reliability. For more information on their treatment by charities see Charity donations and for more information on how donations from companies are treated for tax purposes see Donations from companies to charity.