HMRC has implemented a significant rule change that allows VAT-registered businesses to donate goods to registered charities without incurring VAT charges. This move aims to encourage more donations to good causes, following a sharp decline in public giving.
New VAT Relief for Business Donations
According to accountancy firm Azets, businesses can now donate goods to charities without paying VAT, even if they have previously reclaimed VAT on those items. Previously, such donations were subject to VAT, creating a financial disincentive for businesses.
The change comes as charity donations have fallen by more than £1.4 billion in the last year. Only half of the population now gives to charity, compared to 61 percent a decade ago.
Siobhan Holmes, an Azets partner specializing in not-for-profit accounting, said: "This is excellent news for charities, which we know are receiving less in donations."
Key Details of the Rule Change
Under the new rules, no VAT is due when eligible goods are donated to registered charities for supporting people in need or delivering charitable services. However, the relief includes a monetary cap per item, and charities cannot reclaim VAT on donated goods.
Azets has warned charities to ensure their procedures and records are watertight, as HMRC launches enhanced compliance reviews across the sector.
This change is expected to boost the flow of goods to charities, helping them meet the needs of vulnerable communities amid declining public donations.
