VAT on Donated Goods

Before 1 April 2026, if a VAT-registered business donated goods and had already claimed back the VAT it paid on those goods, the donation was normally treated as if the business had made a sale (a “deemed supply”). This meant the business usually had to pay VAT to HMRC based on the value of the goods it gave away.

There was limited relief where goods were donated to a charity specifically to be sold on (for example, stock donated to a charity shop). But if the goods were donated for the charity to use in its day-to-day charitable work, or to be given away for free (for example via food banks or furniture reuse schemes), the business would usually still have to account for VAT if it had previously recovered VAT incurred on the purchase of the goods.

What changes have come into force from 1 April 2026 

From 1 April 2026, a new VAT relief means VAT-registered businesses will no longer have to account for VAT when they donate eligible goods to a registered charity.

The relief applies where the charity will use the donated goods for one of the following purposes:

• giving them on to individuals in need (for example through food banks or homelessness charities)
• donating them on to another charity or other eligible organisation
• using them as part of the charity’s work where it is not carrying on a business activity

In other words, it removes the VAT charge that previously arose because the business had reclaimed VAT when it originally bought the goods.

Value limits 

The relief includes a cap on the value of each individual item (this is mainly to prevent abuse of the rules):

• Most goods: up to £100 per item
• Essential goods (including furniture, white goods, laptops and mobile phones): up to £200 per item

To apply the cap, the “value” is normally the lower of:

• what the business paid to buy or make the item, and
• what the item is worth now (its current market value).

There are some categories of ineligible goods where the relief does not apply, including alcohol and tobacco, so there has been no change in respect of donation of these types of goods to charities.

What has not changed 

In summary, the following points remain the same:

• Donations of goods for resale by charities were already zero-rated and continue to be eligible for VAT relief.
• The change does not create a VAT reclaim for charities. Instead, it removes the obligation on business donors to account for output VAT.
• Cash donations are unaffected by these changes.

What does this mean for charities in reality? 

These changes represent a positive development for charities, particularly those operating in community support and reuse sectors. By removing the output VAT charge for business donors, the new relief should encourage greater volumes of goods to be donated, helping charities maximise resources for their charitable purposes.

Charities should ensure they have appropriate processes in place to evidence their charitable status, track donated goods, and maintain suitable controls where significant or high‑value items are received. Doing so will not only support operational efficiency but will also provide a clear audit trail where required.

If you have any questions on the changes, please contact our Charities and Not for Profit team here at Price Bailey using the form below.