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VAT Relief For Donated Goods
- UPECO Columnist
- 1 day ago
- 4 min read
From 1 April 2026, UK VAT rules were extended to make it easier for businesses to donate goods to charities without triggering an unnecessary VAT cost.
This is not an entirely new relief. VAT relief already existed where goods were donated to charities for onward sale, such as stock donated to charity shops. The important change is that the relief now also applies where eligible goods are donated for free onward distribution or for use in the charity’s own non-business charitable activities.
What is the relief?
The new rule removes the need for a VAT-registered business to account for VAT when it donates eligible goods to an eligible charity, provided the goods are donated for:
onward donation to individuals, another charity or another organisation; or
use in the charity’s non-business charitable activities.
In practical terms, where the conditions are met, the donation does not trigger an output VAT charge under the deemed-supply rules.
The relief is subject to the following value limits:
£100 per item for most goods;
£200 per item for certain essential goods, including household appliances, furniture, flooring, computers and tablets, and mobile phones.
The value is based on the lower of:
the original purchase or production cost to the donor; or
the cost of obtaining an identical item, taking into account its age and condition at the time of the donation.
Both valuation methods exclude VAT.
Who is affected?
This change mainly affects VAT-registered businesses that donate surplus, returned, overproduced or unused goods to charities.
It is especially relevant to:
retailers;
wholesalers;
manufacturers;
e-commerce businesses;
businesses holding surplus stock or usable returned items.
Charities benefit indirectly because the rule should make it more attractive for businesses to donate usable goods rather than dispose of them.
The recipient must be an eligible charity. HMRC confirms that Charitable Incorporated Organisations, or CIOs, are within the scope of the relief. Community Interest Companies, or CICs, are not charities and are excluded from the relief.
Previously compared with now
Previously
Before 1 April 2026, where a VAT-registered business donated goods forming part of its business assets and had recovered input VAT on those goods, it could be required to account for VAT under the deemed-supply rules.
This meant that a business could face a VAT cost even though it received no payment for the goods.
Relief was already available where goods were donated to a charity for onward sale. However, that relief did not generally apply where the charity intended to give the goods away free of charge or use them directly in its charitable services.
From 1 April 2026
Eligible goods donated to eligible charities for free onward distribution or for use in non-business charitable activities no longer create that VAT charge, provided all the conditions are satisfied.
This brings the VAT treatment closer to the existing relief for goods donated for sale by charities and removes a practical barrier to business donations.
Simple example
A VAT-registered retailer has surplus household items.
Each item cost the business £80 excluding VAT. The items will be donated to a registered charity, which will distribute them to families in need.
Before 1 April 2026
The retailer might have been required to account for VAT under the deemed-supply rules, even though the goods were donated free of charge.
From 1 April 2026
The goods fall within the £100 per-item limit, the recipient is an eligible charity, and the goods are being donated for onward distribution.
Result: the retailer should not be required to account for VAT on the donation. The threshold is not an allowance. If the value of an individual item exceeds the relevant limit, the relief does not apply to that item, and the business must consider whether VAT is due under the normal deemed-supply rules.
Practical points businesses should not miss
Businesses should retain clear evidence supporting the VAT treatment. HMRC expects records such as:
a description and quantity of the goods;
the original purchase price or value at the date of donation;
the date of the donation;
details of the receiving charity;
evidence that the goods were delivered to or collected by the charity;
written confirmation from the charity that it is eligible and that the goods will be used for qualifying purposes.
For recurring donations, HMRC indicates that the charity’s confirmation of its status may be updated annually, provided the information remains accurate.
Excluded goods include:
alcohol and tobacco products that are subject to excise duty; and
vaping products that will be liable to duty.
These goods do not qualify for the relief.
Conclusion
he VAT relief introduced from 1 April 2026 is a practical and welcome change for businesses and charities.
It removes a VAT barrier that previously made some charitable donations commercially unattractive, particularly where goods were being distributed free of charge to people in need or used directly in charitable services.
For businesses with surplus stock, returned items or other usable goods, the new rule provides a clearer route to donate responsibly, reduce waste and support charitable causes without creating an unnecessary VAT charge.
Businesses should nevertheless check the relevant value limits, the recipient’s charitable status, the nature of the goods, their intended use and the record-keeping requirements before applying the relief.
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ATTENTION!
This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.