HMRC has implemented a significant tax rule change in 2026, removing a long-standing VAT burden on businesses that donate goods to registered charities. The alteration, confirmed by accountancy and advisory firm Azets, allows VAT-registered companies to give items such as office supplies, equipment, and surplus stock to charities without incurring VAT charges.
Background of the Change
Previously, if a VAT-registered business donated goods for which it had already reclaimed VAT, the donation was treated as a sale, requiring the business to pay VAT to HMRC based on the goods' value. This tax liability often discouraged donations or led businesses to dispose of unwanted items instead.
The change comes at a critical time for the charity sector. The Charities Aid Foundation (Caf) reported that public donations to good causes fell by more than £1.4 billion last year. Only half of the population donated to charity in the past year, down from 61% a decade ago, with millions citing an inability to afford donations.
What the New Rule Means
Siobhan Holmes, an Azets partner specializing in not-for-profit accounting, explained: "This is excellent news for charities, which we know are receiving less in donations. 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."
Holmes emphasized that the relief includes a monetary cap per item, and charities cannot reclaim VAT on the donated goods. She 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."
Practical Advice for Businesses and Charities
Azets recommends that businesses consider donating surplus stock, office supplies, and equipment that charities often welcome. Charities should maintain detailed records of donated goods, especially expensive items, and keep an audit trail to ensure compliance.
Additionally, Azets has warned charities and not-for-profit organizations to ensure their procedures and records are watertight in light of new and enhanced compliance activity. HMRC has initiated a program of Structured Risk Reviews (SRRs) across the charity and not-for-profit sectors, signaling a more intensive and data-driven approach to oversight.
