Imagine tossing away a perfectly good umbrella during a downpour, while someone nearby is soaked to the skin. Same effort and cost to the umbrella owner, but zero benefit to anyone. Waste feels wrong when help is possible.
For years, that’s been the reality for businesses wanting to donate surplus goods to charity. The rules meant they faced a choice:
• Pay 20% VAT on the donation, or
• Throw the goods away
Unsurprisingly, most chose the latter. Companies exist to make profit, not to absorb extra costs for doing good. The old rules allowed zero-rating only if the charity sold, exported, or hired out the goods. If the charity wanted to use them or pass them on, VAT applied. Well-intentioned, but incomplete.
The Autumn Budget 2025 changes that. From 1 April 2026, businesses can donate goods to charities — whether for sale, use, or onward donation — without paying VAT, provided the goods fall within these thresholds:
• £200 for essential goods (such as white goods, furniture, computers and phones)
• £100 for all other items
The thresholds
The thresholds will apply on a per item basis (not accumulative). This means that if a business wishes to donate a pallet of 200 packets of (chocolate-covered) biscuits, it should be inconsequential that the pallet is worth over £100 – the value is determined on an item basis – meaning what the consumer would ordinarily buy.
Valuation
As for how to determine “value”, this will be the item’s cost: either the cost of purchase or the cost of manufacture. Where the cost price / cost of manufacture doesn’t provide a realistic valuation because the appliance is ‘obsolete’ (or no longer in production) a reduced value may be used to reflect this. We have yet to see guidance setting out precisely how this mechanism will work.
While appliances such as laptops, mobile phones and washing machines are available within the £200 limit, goods donated by a business which sells ‘high-end’ items (think large family fridge-freezer as opposed to a Vertu phone) may easily fall outside the limit.
HM Revenue & Customs’ and HM Treasury’s (HMRC & T’s) response to this concern is essentially that:
• The rules are meant to enable charities to donate basic goods to recipients as opposed to luxury products
• Where a business donates luxury goods to charities, the expectation is that the charity will sell such goods and convert such revenue into (i) basic goods or (ii) the charity’s operations
Regular uplifts
HMRC & T mentioned that provision is intended for regular uplifts in line with inflation. This provision will not be included in the legislation itself, so whether this pans out as intended remains to be determined.
Bundled items
We understand from HMRC & T responses during consultations that where items are sold as a bundle, the threshold would apply to the individual item and not to the bundle. The example given in consultations was toothbrushes, dental floss and mouthwash that were always sold together as one package.
Use – non-business activities
As part of the new rules, businesses may zero-rate goods donated for use by the charity but only for use in its non-business activities. A business activity which has ‘charitable purposes’ will not meet the criteria for zero-rating.
So, for example, a donation of cleaning products that the charity will use to clean its premises should be zero-rated if those premises serve only the non-business activities of the charity. If the premises serve business activities of the charity then VAT should be charged (or paid) by the business. This framing is to avoid charities potentially circumventing the partial exemption rules. Community centres are therefore unlikely to qualify if they have business activities.
HMRC & T considered in consultations whether an apportionment approach might work e.g. if 50/50 for business / non-business use, then VAT at 20% would apply to 50% of the cost/value (or an effective VAT rate of 10%). We’re not certain that such an approach is feasible. It’s hard enough for charities to work out their own business/non-business (B/NB) apportionment without then asking donors to provide a reasonable B/NB apportionment for the downstream use of products they donate.
HMRC & T explained that the certificate (see below) would do the heavy lifting here.
We would expect a de minimis provision may apply (such as the 5% rule found elsewhere in charity provisions) but this is not yet clear.
Record keeping
General requirements
We understand that legislation will not set out specific requirements for record keeping. Some evidence will however need to be kept.
Certificates and inventory lists
It is clear that a certificate will be required to be provided by a responsible person in the charity to the business. In that certificate, the charity will need to commit to donating the goods to persons in need (or presumably to using the goods for charitable purposes). The certificate would need to contain a minimum amount of identifying information about the charity in question (e.g. its name, address, charity number) but HMRC did not intend to be prescriptive on the form of such certificates.
Businesses would be able to draft the appropriate certificates for signature by the charity.
Certificates – series of donations
HMRC & T stressed that certification would only be required in the first stage of donation from business to a charity. If that charity subsequently donated those goods onwards to smaller charities, no certification would be required for zero-rating to apply to the second donation.
Incorrect statements in certificates
If the charity has provided a certificate incorrectly (e.g. stating it would use the products for non-business purposes but in fact using them for business purposes), the business donor would not become liable if it acted in good faith in reliance on that certificate.
Evidence of delivery
Evidence would also be required showing that goods had been delivered to the charity in question. HMRC mentioned that a “certified copy” of an inventory list would be satisfactory.
We hope that HMRC & T were being loose with language, as a requirement of “certified as true” copies could present an administrative hurdle to businesses. This was mentioned as one example, but HMRC & T committed to providing guidance similar to VAT Notice 703 (relating to exports) which provides a list of various documents (a selection of) which could serve as commercial evidence collectively. This was generally well-received by industry as being a reasonable approach.
Our recommendations to businesses
We would recommend that businesses keep:
• Detailed records of cost of purchase/manufacture e.g. invoices, cost of sale breakdowns (not for each individual item, but for classes of items in general)
• Certificates signed by the relevant charity
• Evidence of delivery
HMRC & T repeatedly stated that they do not expect businesses to keep invoices as part of their record keeping (in this context).
Phone plans
Industry did raise concerns that “a phone without a plan is a brick”. HMRC & T sympathised strongly with this position, but we don’t consider they will change the legislation to zero-rate the donation of phone plans.
A plan is a service and, as such, falls outside of the remit of the provision on donated goods. It also isn’t clear how this would apply in practice. Generally, businesses donate goods that they cannot easily sell. We find it difficult to conceive of a business donating a “surplus” plan.
With this said, we agree that a phone with a plan is more practical than one without – we would be delighted if HMRC could square this circle.
Cost of production – overheads
When discussing how the cost of production would be calculated and whether overheads (light, heating, rent etc) would form part of the value, HMRC & T voiced uncertainty as to how this would be presented in the guidance. This will be a critical issue for edge cases approaching the limits and we would recommend seeking advice in such cases.
Which charities will be affected
The relief will only apply to charities which are registered with either:
• The Charity Commission (including the equivalent bodies in Scotland and Northern Ireland)
• HMRC
HMRC & T stressed that the process for registering as a charity with HMRC should be straightforward, but conceded that the requirement of having a bank account might be difficult for some smaller charities.
How BKL can help
We have dedicated advisers with decades of specialist experience across the not for profit sector. We provide audit, accounts, tax and strategic advice to charities of all sizes: helping to ease the pressure, so they can focus on doing good in their communities.
Our specialist tax advice for charities includes how best to maximise Gift Aid recoveries and minimise the impact of taxes, such as VAT and capital gains tax, on their activities.
For more information about how VAT applies to your operations, get in touch with Luigi Lungarella or send us an enquiry.
