A new VAT relief from 1 April 2026 removes the VAT charge on certain goods donated by VAT-registered businesses to eligible charities, helping more surplus items reach good causes at lower cost.
Overview
The donation of goods by a VAT-registered business to a charity or its trading subsidiary for onward sale by the recipient is zero rated. This means there are no VAT concerns for both the donor and the charity.
VAT would typically apply in other scenarios including the donation of goods forming part of the assets of a business to a charity for a charity’s own use. However, a new relief now applies to certain goods donated to eligible charities, reducing the VAT burden associated with charitable giving.
The new VAT relief was announced in the 2025 Budget and came into effect recently following a consultation period.
Before 1 April 2026, businesses were required to account for VAT on a deemed supply when goods forming part of their assets were donated to a charity and VAT had been recovered on their initial purchase. Many transactions that triggered a VAT charge under this rule now no longer do so.
New relief
Eligibility
From 1 April 2026, VAT registered businesses do not have to account for VAT where eligible goods are donated to an eligible charity for:
Onward donation to an individual, another charity, or another organisation
Use in the charity’s own non-business activities.
An eligible charity is one that is either registered with the Charity Commission, corresponding regulator (where required) or registered with HMRC for charity tax purposes.
Alcohol, tobacco products subject to excise duty and vaping products liable to duty are specifically excluded from the relief.
For other goods, relief applies where an individual item does not exceed £200 (excluding VAT) in the case of specified items or £100 (excluding VAT) for other items.
The following items are subject to the higher £200 limit:
- Household appliances including but not limited to cookers, fridges, washing machines, dryers, and heaters
- Furniture, including mattresses
- Flooring (including carpets and rugs)
- Computers including tablets
- Mobile phones.
Valuation
The value of eligible goods is the lower of:
- The original cost to the donor of purchase or production of the item
- The amount a donor would have to pay to obtain an identical item having regard to age and condition at the time of donation.
Under the first valuation method, HMRC will accept a reasonable estimate where it is difficult to establish the original cost, particularly where the donated goods are below the £100 and £200 value limits.
Under the second valuation method, a similar item can serve as a substitute for an identical item if valuation against an identical item is not possible.
The second valuation method is aimed at:
- Used business assets
- Aged or old stock that has depreciated in value since purchase.
- The calculated value would apply as being lower than the original cost under the first valuation method. The second valuation method would also apply where the original purchase price cannot be determined.
Evidence
A charity in receipt of a donation of eligible goods should provide the donor with written evidence of its status as an eligible charity so the donor can evidence its relief entitlement.
If regular donations are to be made, HMRC do not expect charities to provide evidence every time they receive a donation. Annual confirmation statements are fine.
VAT registered businesses applying the relief should ensure that any supporting documentation regarding the charity should include:
- The name and address of the registered charity
- Details of the charity’s registration (including number)
- A signed statement from a charity official that the goods will be used for a qualifying purpose
In addition, the records of a business should include the following information (to be made available to HMRC if so required):
- A description of the goods and quantity
- Original purchase price or value at the time of donation
- Date of donation
- Proof that the goods have been dispatched to or collected by the eligible charity.
Summary
This is a notable change that is beneficial to all. More goods that are otherwise destined for landfill will now enjoy a new lease of life in the charitable sector at no cost to charities or businesses.
The tax take may be lower because of the change, but that is a price worth paying when weighed against the upsides elsewhere.
If you would like to discuss further, please get in touch with our Charities & Non-Profit team.
Please note that this content is not intended to give specific technical advice. It is designed to highlight some of the key changes rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
