HMRC Removes VAT Charge on Certain Business Donations to Charities, Subject to Value Limits

HM Revenue and Customs confirmed that VAT-registered businesses can donate eligible goods to registered charities without incurring additional tax charges. The updated guidance applies when the donated items are used to support vulnerable people or assist charitable activities. Before the change, businesses that donated goods after reclaiming VAT on them were treated as making a taxable supply.

Companies had to pay VAT to HMRC based on the value of the donated items. The revised rules remove that requirement for qualifying donations. The relief is subject to a value limit on individual donated items.

4 billion over the past year, according to the Charities Aid Foundation. Just half of the population donated to charity last year, down from 61 per cent ten years earlier. Siobhan Holmes, a partner at Azets specialising in not-for-profit accounting, said the change is excellent news for charities.

She stated that HMRC has confirmed no VAT will be due when eligible goods are donated free of charge to registered charities where the goods support people in need or deliver charitable services. Holmes noted that many businesses may not have realised the previous rules created a tax charge on donations.

She said some companies might have disposed of goods rather than donated them because of the associated VAT costs.

Holmes added that businesses can now support charities without concerns about breaching tax rules. Office supplies and equipment or surplus stock is often welcomed by charities, she said. Charities themselves remain unable to reclaim VAT on donated goods they receive.

Holmes advised charities to maintain detailed records of donated items, particularly higher-value goods, and ensure there is a clear audit trail. Azets urged businesses to take advantage of the relief by donating surplus stock, office equipment and other unused items to charities.

Azets also warned charities to review their procedures carefully as HMRC continues carrying out Structured Risk Reviews across the sector.