Many entrepreneurs are failing to use tax efficient methods when making donations to charity, according to experts at accountants PricewaterhouseCoopers.

It is estimated that charities could be missing out on millions of pounds because individuals don’t take advantage of the tax breaks available.

Entrepreneurs are becoming more interested in charitable giving, partly due to the increased profile it attracts. However, they do not seem to be aware of how to make donations tax efficient and the charities are also losing out as a result.

Gary Telford, Midlands head of private client at PwC, said: "For owner-managers, charitable giving is playing an increasingly important part in managing their wealth.

"Having reached their business objectives and looked after their families’ needs, people often look to the community to give something back. However, it’s important that donations are structured in the most tax efficient way possible in order to maximise the benefits for all concerned.

"There is often a misconception that obtaining tax relief on charitable donations is complicated, however it needn’t be.

"The main thing to consider is the value of the donation and how much will be donated. If there is a substantial amount to donate, the donor should consider if cash is the most tax efficient way of giving. Although it may seem easier to write a cheque, there can be added benefits of gifting certain assets."

There are several ways to be tax efficient when donating to charity.

The easiest is to donate cash and claim Gift Aid. The charity can claim basic rate tax back from HM Revenue & Customs which can increase a gift of #100 to #128. Higher rate taxpayers can then claim their own tax relief on the #128 against their income or capital gains. There is no limit on Gift Aid other than the income of the donor in any year.

Gift Aid is claimed by a simple declaration and can be made at any time. For businesses or individuals wishing to give large sums, setting up a charitable foundation can be a tax efficient option. However, the set-up costs need to be considered as it will involve obtaining a Charity Commissioners' agreement.

Alternatively, businesses could donate quoted shares or land. By giving such assets to charity, rather than cash, the donor can obtain an income tax deduction for the value of the asset and avoid any capital gains tax on any growth in value of the asset. Therefore an individual may need to think twice before selling quoted shares or land to free up cash for a charitable gift. Donating to charity through a will can help reduce an individual’s inheritance tax bill.

For example, inheritance tax of 40 per cent is applicable for estates with assets above #285,000, so if an individual was to donate a lump sum to charity the net cost to the estate is #60 for every #100 given.

Mr Telford said: "Donations through a will can also be particularly tax efficient means of giving. For example, there is a way to direct your charitable gift via an individual, which will also allow Gift Aid to be claimed. Therefore not only is inheritance tax saved, the charity can obtain a tax refund and the individual higher rate tax relief."n HM Revenue & Customs is challenging the right of charities to tax-free income from interest derived from bond trading, a move which could cost the sector millions of pounds a year, UHY Hacker Young, the Birmingham accountancy firm, claimed yesterday.

Major charities have been contacted by HMRC claiming that a portion of the income they may make from bond trading is facilitating a form of tax evasion called ‘bond washing’.

Malcolm Winston, partner, said: "The charities are not involved in tax avoidance of any sort. If companies are evading tax through bond washing, HMRC should tackle the problem at source, but charities are soft targets who may feel they have to co-operate or risk losing their tax exempt status."