Consultation: VAT treatment of business donations to charity

The consultation explains that the VAT rules for goods donated by businesses to charities for resale are not currently aligned with those for goods donated to charities for onward endowment or delivery of the charity’s services.

• VATA 1994 Schedule 8 Group 15 Item 2 allows zero-rating on the donation of goods to a charity when those goods are then sold by the charity.
• When a VAT-registered business donates goods to a charity and they are not then sold, if the donor reclaimed input tax on the purchase of those goods, an output tax charge is due on the value of the goods. The value on which output tax is declared is based on the cost of purchasing identical or similar goods, taking into account their age and condition. If the cost of identical or similar goods cannot be ascertained, production cost should be used.
• The difference in treatments is due to there being no audit trail if goods are not sold by the charity. As a result, zero-rating all charitable donations could become a route for illegitimately channelling goods VAT-free to the resale market or individuals associated with the business.

The Government seeks views on a new VAT relief for goods donated to charities that are either used by them or given away. The objectives of the relief are to encourage charitable giving and reduce waste. 

To minimise the risk of abuse, the consultation explores eligibility for the new relief in several ways:

• A maximum value could apply to the goods donated. Suggestions include £50 or £100 per individual item.
• Some types of goods, such as laptops, tablets and mobile phones, are considered ‘higher-risk’ by HMRC. Eligibility could exclude such goods, or a list of goods that are eligible could be established. Alternatively, relief could be restricted to goods that are subsequently given away by the charity.
• Eligibility could be restricted to goods that are given away by the charity to certain types of recipients, such as individuals who receive welfare support.
• A ‘maximum value per recipient individual’ could be implemented, meaning that goods donated by the charity to a specific individual would not qualify for the relief once a threshold has been exceeded.
• The relief could be restricted to donations made to certain types of charities, such as those that are registered or those whose objectives relate to poverty relief.

The consultation also explores the record-keeping and compliance implications of the new relief.

• The donor business will need to keep records and retain them for possible inspection to help ensure against any breach of the rules. The Government is keen to explore proportionate compliance checks and record-keeping requirements to ensure the system is not exploited. These safeguards are important, particularly where large quantities of goods are donated and are of a type and value that could be fraudulently diverted for resale without properly paying VAT.
• A certification model is being explored, involving the recipient charity guaranteeing that the donated goods will be used as intended.
• The Government acknowledges that charities may find it disproportionately difficult to assess some of the eligibility criteria explored in the consultation and is keen to explore what is and is not possible to design proportionate administration requirements for the relief.

The consultation closes on 21 July 2025. Responses can be made by email.

Useful guides on this topic

Business Gifts
What are business gifts? Are business gifts allowable for tax purposes? What needs to be disallowed?

External link

HM Treasury: Consultation on the VAT treatment of business donations of goods to charity

Question 1: Are you responding as a business, a charity (registered or unregistered), a charitable incorporated organisation (CIO), another type of organisation, or an individual?

Question 2: If you answered ‘a business’, please provide details in relation to:

• The size of your business (e.g. turnover and number of employees).
• The sector of your business.
• Where your business is established (e.g. UK, Isle of Man, another country (if so, please specify the country)).
• Whether you currently donate goods to charity to be given away free of charge, or used in the delivery of their services, including a rough estimate of volume and value of donations, or are considering doing so.
• What barriers (if any) prevent you donating stock to charities to give away free of charge, or use in the delivery of their services, and/or increasing the scale of your donations.

Question 3: If you answered ‘a charity’, please provide details in relation to:

• The size of your charity (e.g. total income, number of employees).
• Your charitable aims and functions.
• Where your charity is established (e.g. UK, Isle of Man, another country (if so, please specify the country)) and where the individuals benefiting from your charity are located, if different.
• Whether you currently receive business donations of goods to give away free of charge, or use in the delivery of your services, including a rough estimate of volume and value of donations.

Question 4: If you answered ‘an organisation’, please provide details in relation to:

• The size of your organisation.
• Your organisation’s aims and functions.
• Where your organisation is established (e.g. UK, Isle of Man, another country (if so, please specify the country)).
• Whether you currently donate or receive donations of goods to give away free of charge, or use in the delivery of services, including a rough estimate of volume and value of donations, or are considering doing so.

Question 5: If you are currently either donating goods or receiving donations, please provide details of your operating model:

• How many and what types of organisations are involved in the end-to-end process of donating and giving out goods?
• What is your role in the process?
• Do you either charge a fee or price of any kind on donations as a business, or pay a fee to receive donations as a charity? Does this enable you to access the existing VAT relief on goods donated for sale?
• How permanent or formal are the relationships with the other parties in the operating model? For example, are relationships ongoing or one-off basis? Are there written or verbal agreements in place with other parties? Do you carry out any checks before you start working with them and/or on an ongoing basis?
• Are there parts of the donation-to-distribution chain which are not visible to you (for example, if you are a business, do you know what happens to the goods once you have delivered them to the charity)?
• How are suitable end-recipients to receive donations identified and reached (for example, are there criteria or referral systems in place and how do these work, or do you use a purely walk-in system)?
• Are intermediaries or referring organisations involved in identifying or distributing goods to end recipients? If so, are these intermediaries charities, other types of organisations or individuals, and how do you choose which intermediaries you work with?

Question 6: Would you use a relief on goods donated to charity to give out free of charge or use in the delivery of their services?

Question 7: Would the proposed relief encourage donations?

Question 8: Would the proposed relief support circular economy objectives by encouraging the donation of goods which may otherwise be put into landfill?

Question 9: What is the average value of individual items you donate or receive? If you donate surplus or end-of-life stock for charities to give away free of charge, how do you calculate the value of the stock to determine the VAT due?

Question 10: If a value limit were put on individual items donated, what would be a suitable maximum value?

Question 11: What types of goods do you donate or receive (e.g. hygiene products, clothes), and what is the status of the goods (second-hand, new stock, end-of-life stock, business returns)?

Question 12: If we listed types of goods eligible for the VAT relief, what categories of goods should be included? Please also list goods it would be problematic to exclude them from the relief if relevant.

Question 13: Do you have views on how else we could define which goods are eligible for the relief, or foresee any issues with the options set out above?

Question 14: For what purpose do you use donations; to give away to those in need, use in the delivery of services, or another purpose?

Question 15: Do you foresee any problems with a relief which included goods for distribution to those in need, but not for use in the delivery of a charity’s services?

Question 16: Would limiting the relief to eligible individuals, such as those who receive welfare support, impact your ability to distribute donations to those in need?

Question 17: Would applying a limit on the total value of VAT-free donations an individual could receive impact your ability to distribute donations to those in need?

Question 18: What are your views on the types of organisations which should be eligible to receive goods donated under this relief, for example charities, social enterprises and charitable incorporated organisations?

Question 19: What are your views on restricting the relief to goods donated to registered charities? As an unregistered charity, would you be able to provide HMRC with assurance against the risk of fraud in the form of records and accounts in the absence of formal registered charity status?

Question 20: What are your views on restricting the relief to goods donated to charities with a poverty relief objective, and would such a restriction create any challenges for your current operating model? If you’re not a registered charity, would you be able to demonstrate a poverty relief objective?

Question 21: What are your views on a requirement for businesses to demonstrate that they have delivered, or otherwise made available, goods to an eligible charity?

Question 22: If you currently donate goods to be given away free of charge, what records do you keep?

Question 23: What are your views on the records which could be needed to assure compliance with the relief?

Question 24: Do you think the option to use a certification system would be effective for this relief? Do you have views on other means for a business to seek assurance that the charity will use the goods for the intended purpose?

Question 25: If you are a charity which receives donations, what records, if any, do you keep on total donations and individual recipients of donations?

Question 26: What is the scope for limiting the total value of donations an individual receives, or putting in place eligibility criteria for recipients such as the receipt of welfare support? Do charities keep records of the value of donations individuals receive which could be used to facilitate a limit on the total value of donations? Do charities hold information on the recipients of donations, such as whether they receive welfare support, and if not, would it be possible to collect this information?