HMRC has confirmed the scrapping of a long-standing tax on businesses making charitable donations, in a change that has been welcomed by the sector. The Labour Party government and HMRC have abolished the VAT charge that previously applied when firms donated goods to registered charities.
What Has Changed?
Tax advisory firm Azets has clarified that businesses can now donate goods to registered charities without incurring a VAT charge. Siobhan Holmes, an Azets partner specialising in not-for-profit accounting, described the change as "excellent news for charities, which we know are receiving less in donations."
She explained: "Essentially, HMRC has confirmed that for VAT-registered companies, no VAT will be due when eligible goods are donated free of charge to registered charities, where those goods are used to support people in need or to deliver charitable services. The changes remove the VAT that previously applied because the business had reclaimed the amount when it originally bought the goods."
Important Details and Conditions
However, the relief does include a monetary cap per item, and charities cannot reclaim VAT on the donated goods. Holmes noted: "Many will be unaware that donations were liable for VAT, but there will also be companies that might have disposed of goods rather than donated them because of the tax they would have to pay. We want to get the message out to businesses that they can now donate to charities without falling foul of HMRC."
Office supplies, equipment, or surplus stock are often welcomed by charities, and there will be other goods that will be of great use to them. Holmes advised: "For their part, charities should make a record of donated goods - especially any expensive items - and keep an audit trail."
Effective Date
From 1 April 2026, businesses donating goods to registered charities for onward distribution to people in need, to another charity or organisation, or for use in the charity’s non-business activities will no longer be required to account for VAT on those items. Such donations were previously subject to VAT at 20% as deemed supplies, differing from the VAT relief for business donations of goods to a charity for sale.
