Boost To Everyday Charitable Donations Through New VAT Relief

18th April 2024

Consultation on VAT relief on everyday charitable donations will be launched before 23 July 2024.

New VAT relief to encourage businesses to donate everyday items to charity will be consulted on.

Currently firms do not pay VAT if goods are sold on, however, if distributed free of charge VAT must be accounted for
12 week consultation to be launched before 23 July 2024

A new VAT relief to encourage businesses to donate everyday items to charity will be consulted on, the Treasury's tax minister Nigel Huddleston has announced today (18 April 2024).

Currently firms do not pay VAT on any goods they donate which are then sold on, such as clothes, hygiene supplies and cleaning products. However, if these goods are not sold but are instead distributed free of charge to those in need VAT must be paid for.

The Treasury has today announced it will consult on a new VAT relief for donations of low value household goods to help encourage donations.

Nigel Huddleston, Financial Secretary to the Treasury said "We want the tax system to support donations to charity, not work against it.

We are consulting on how a VAT relief might boost donations so we can get more items we all rely on everyday to those in need and help to alleviate poverty.

Donations that could be in scope of the proposed new VAT relief could include anything that may be of use to a household, such as:

hygiene items (soap, toothpaste, toothbrushes, shower gel, toilet rolls)
second hand items from hotels (such as sheets, kettles)
cleaning supplies - including laundry detergent
Helen Dickinson OBE, Chief Executive of the British Retail Council, said, "Following our representations to government, we welcome the consultation into the unequal tax treatment of goods for onward sale compared to those being donated directly to those in need. We hope that the consultation will result in a meaningful change that will boost the charitable work of business in this country.

Andy Scott, Principal Tax Adviser, Confederation of British Industry said, "We welcome the government’s announcement to consult on a new VAT relief for charitable donations of everyday items. This progressive step aligns with our calls for a smart tax system that incentivises corporate social responsibility and cuts red tape for businesses wanting to contribute their unsold stock to good causes.

By removing the VAT penalty on donated goods, businesses will be more encouraged to support the growth of the civil society sector and the circular economy.

The proposed VAT relief will lower the cost of generosity, allowing firms to extend their social impact without the deterrent of an additional tax expense or the administrative burden of valuing donated goods. We look forward to working with the government to shape a relief mechanism that maximises the potential for positive change in our communities and simplifies the tax system.

A barrier to businesses donating goods to charities for distribution to people in need has grown over recent years as firms have had to account for VAT on donations which are not for onward sale.

The Treasury announced today that it will launch a 12-week consultation before 23 July 2024. It will consult on introducing a UK-wide VAT relief for a range of low value household goods which businesses donate to charities to give away free of charge to people in need. The conclusion to the consultation will be announced at a future fiscal event.

The new VAT relief will not include goods which are donated to charities for them to use, such as new IT equipment. This is to prevent VAT avoidance. For example the commercial arm of an organisation buying equipment then donating them to a charitable wing to avoid VAT. The consultation will seek views on this.

VAT is the UK’s third largest tax, forecast to raise £171 billion in 2023/24. Taxation is a vital source of revenue which helps to fund the UK’s schools, hospitals, and other essential services that we all rely on. VAT has been designed as a broad-based tax on consumption, and any relief requests must be carefully considered and balanced against the need to manage the public finances in a disciplined and responsible way by targeting support where it is most needed.