UK Treasury & HMRC consult on VAT relief for Business Donations
The UK HM Treasury and HM Revenue and Customs (HMRC) have launched a public consultation on introducing a new VAT relief aimed at encouraging business donations to charities. The proposed relief would apply to goods donated by businesses that charities either give away free of charge or use in delivering services—areas currently excluded from VAT exemptions. The Treasury is considering various implementation measures, including:
- limiting the relief to registered charities or narrowing it further to those focused on poverty relief; and
- a potential cap on the value of VAT-free donations per recipient – though acknowledged to be difficult to enforce.
The consultation remains open until 21 July 2025, and the government is encouraging input from all interested parties to ensure the relief is practical, targeted and fraud-resistant.
The EU charitable donations VAT review is looking at the same issues.
Charitable VAT recovery to be extended
Under the existing rules, businesses can donate goods to charities for resale, export, or leasing without incurring VAT and can recover related input VAT. However, goods donated for direct charitable use—such as providing essentials to those in need—are still subject to VAT, creating a barrier to in-kind giving and increasing waste. The government acknowledges that these VAT rules are misaligned and were initially structured to prevent fraud. The consultation will explore options to align the framework while maintaining the integrity of the VAT system.
The consultation document is structured in four chapters:
- It begins by gathering insights from stakeholders about their experience in giving or receiving donated goods;
- Reviews the current VAT framework;
- Proposes objectives and the potential scope of the relief; and
- Examines possible administrative models for implementing the changes. The relief is intended to apply across the entire UK, as VAT is a reserved tax.
Charity sector leaders and advocacy groups such as the Charity Finance Group (CFG) and the Charity Tax Group have welcomed the move. They emphasize that VAT relief for business donations has long been a sector priority and could enhance charitable giving, reduce waste, and support vulnerable communities.
See more in our UK VAT guide.
