Budget 2025: New UK VAT relief for business donations to charity
Corporate donors will now find it easier to channel surplus stock to good causes. Under the Budget reformed rules, qualifying goods given to charities for direct use in their activities will no longer trigger an extra VAT cost for the business. This follows an earlier consultation.
The change also removes an awkward distortion in the current system: previously, scrapping goods could be more tax-efficient than donating them, because disposal to landfill did not give rise to a VAT charge while certain donations could. The new relief reverses that imbalance, encouraging charitable giving while keeping the regime relatively simple and embedding safeguards to deter abuse.
The UK Autumn Budget on 26 November 2025 confirmed a new VAT relief designed to make it easier and cheaper for businesses to donate surplus goods to charities instead of destroying or discounting them. From 1 April 2026, qualifying donations of goods to registered charities will no longer trigger a VAT charge under the “deemed supply” rules, within defined value limits.
EU VAT on charitable goods giving reform is also underway – although there remains some differences.
Removing VAT penalty on business contributions
Under current rules in the Value Added Tax Act 1994, giving away business assets can be treated as a taxable supply, requiring output VAT to be accounted for. There is already a zero rate for certain donations of goods to charity for onward sale, but this does not cover all types of charitable use.
The new relief will amend Schedule 4 VATA 1994 to create a specific exception for business goods donated free of charge to charities where:
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The goods are onward distributed to people in need, or
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Used directly in the charity’s own services (non-business activities).
In these cases, the donor will not have to account for VAT on the items, provided they fall within the new per-item value limits.
Businesses and charities to benefit
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Businesses: Particularly those in retail, consumer goods, technology and homeware that frequently hold surplus, obsolete or returned stock. The relief reduces the tax friction in diverting usable goods to charities.
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Charities: While the relief applies to the donor’s VAT position, charities should benefit from increased volumes and improved quality of donated goods for use in their programmes.
Scope and limits for the reform
The relief is deliberately targeted:
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Per-item value limits will apply, with higher thresholds for listed goods such as technology and household appliances.
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Certain excise goods (for example alcohol and tobacco) will be excluded.
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The legislation will allow for future uprating of value limits and for changes to the list of goods eligible for higher thresholds.
Further operational detail will be provided in HMRC guidance, including record-keeping expectations and definitions of eligible use.
This targeted measure is intended to encourage charitable giving, support essential services delivered by charities, and reduce waste by keeping surplus goods in productive use, backed by a clearer and more favourable VAT treatment.
