First published in NURSERY MANAGEMENT TODAY in their November/December 2013 issue and reproduced here with the magazine’s kind permission.
Carol Cheesman explains how you can establish your corporate social responsibility by giving it a local twist
There are numerous benefits to be derived from businesses engaging with their local community. In many cases, both the business and local community will benefit. The scope of engaging with the local community is wide and can
range from merely employing local staff to being involved in local charities and organisations.
Corporate social responsibility
The principle of corporate social responsibility involves businesses having an ethical obligation to act in a way that benefits society, and this has long been applied to, and embraced by, big businesses and corporations. As the BBC has said, “No major company strategy is complete these days without a statement on corporate social responsibility (CSR)”
One could argue that there is a greater obligation on these big businesses to act in an ethical manner compared with small businesses. Therefore, their respective responsibilities in this regard tend to be very different. For example, big businesses are involved in both national and international markets. So, their social responsibilities are likely to be of a worldwide nature, for instance environmental concerns relating to production and the use of cheap labour in foreign countries.
However, one of the ways in which small businesses can promote social responsibility is to engage with their local community. There are numerous ways of doing so, and, while this article will not provide an exhaustive list of such, it will outline, from an accountant’s perspective, some of the main issues to consider.
A simple way of engaging with the local community would be to make a donation to a local charitable organisation. Limited companies can claim tax relief on monetary donations to charities, subject to a number of qualifying conditions. Provided these are met, the donation is deductible from the profits of the company when calculating corporation tax. One of the main conditions stipulates that any benefits derived by the donor company, or a connected person, from a donation, must be within the following limits:
- donation between £0 to £100 – maximum value of benefit must not exceed 25 per cent of the donation
- donation between £101 to £1,000 – maximum value of benefit must not exceed £25
- donation of £1,001 and above – maximum of 5 per cent of the donation up to £2,500 for donations made after 6 April 2011. (Prior to 6 April 2011 the maximum amount was £500)
A donation will not qualify for relief in the case of any of the following:
- it comes with a condition for repayment
- it comes with a condition that the charity will purchase a property from the company or a connected person
- the benefit derived exceeds the above limits
- the donation is in the form of a profit distribution (for example, by way of a dividend).
Gift Aid explained
Sole traders and partnerships do not receive a tax deduction for charitable donations, but, provided the donation is made with a gift aid declaration, the taxpayer will get tax relief via the extension of the tax rate bands to the value of the gross charitable donation.
For example, current income tax bands are as follows:
- basic rate: £32,010 (tax at 20 per cent)
- higher rate: £32,010 – 150,000 (tax at 40 per cent)
- additional rate over £150,000 (tax at 45 per cent).
Income of up to £32,010 would ordinarily be subject to tax at 20 per cent. However, a person making a charitable donation of £1,000 with a gift aid declaration is deemed to have made a gross contribution of £1,250. This would result in an increase in the basic rate band to £33,260 (£32,010 + £1,250), meaning that the taxpayer can now earn £1,250 more of income before he is taxed at 40 per cent.
Local young people
Employing local workers is also likely to help the local community and it is common for young people to have their first job at a local business. This benefits the employee as they are gaining valuable work experience, but also benefits the business as they can pay employees under 21 a lower hourly wage, compared with employees over 21, for a role that is often of an unskilled nature.
Clearly, young people should not be exploited for work as this would be contrary to a business’s social
responsibility. Therefore, it is essential to be aware of the national minimum wage requirements which were increased on 1 October 2013 to the following:
- workers aged 21 years or more – a minimum of £6.31 per hour
- workers aged 18 to 20 – a minimum of £5.03 per hour
- workers aged under 18 (but above compulsory school age) – a
minimum £3.72 per hour.
The above are the standard minimum wage requirements and they differ for apprentices:
- apprentices aged under 19 – a minimum of £2.68 per hour
- apprentices aged 19 and over and in the first year of an apprenticeship – a minimum of £2.68 per hour
- apprentices aged 19 and over who have completed at least one year of an apprenticeship are subject to the standard national minimum wage requirements for their age.
The lower minimum wage for apprentices reflects the fact that a business will be dedicating time to training the employee in a valuable trade, and this is reflected in the additional support available for employers who take on apprentices. Employers can be eligible for an apprenticeship grant of £1,500 for new apprentices aged between 16 and 24, and this can be claimed for up to 10 apprentices. The scheme is currently available until 31
Funding is also available, subject to certain conditions, for training costs. The level of it will depend on factors including the age of the apprentice. Generally, the funding available will be 100 per cent of the cost for apprentices aged between 16 and 18 and 50 per cent of the cost for apprentices aged between 19 and 24. For apprentices over 25, the level of funding is sector-specific, but, in many cases, will be less than 50 per cent of the cost.
Eco responsibility Environmental concerns also play a part in a business’s social responsibility, both on a local and international level. An example of a scheme that can benefit the environment and businesses is the Enhanced Capital Allowance scheme, which encourages businesses to invest in water-efficient
plant and machinery – in other words, products like water-efficient taps and toilets.
Where specific conditions are met, a business can write off 100 per cent of the costs of purchasing this equipment against its taxable profits in the year of purchase.
As stated by HM Revenue & Customs, ‘this can bring significant financial savings and reduce your business’s impact on the environment’. See:First year allowances for water efficient technologies
All of this is just a snapshot of some of the benefits of engaging with the local community from an accountant’s perspective, and there are numerous other avenues to explore, should you wish to promote social responsibility through your business.