HM Revenue & Customs (HMRC) revised its guidance on the VAT treatment of goods donated by VAT-registered businesses to charities, specifically where those goods are intended for onward donation or use in a charity’s non-business activities. These changes took effect from 1 April 2026 and provide a clearer, more structured framework for determining when a VAT charge does not arise on such donations.

The updated guidance addresses a long-standing area of uncertainty, setting out defined conditions around eligibility, permitted use and valuation thresholds. As a result, businesses are now better positioned to assess whether relief applies at the point of donation, rather than relying on interpretation or case-by-case judgement.

For VAT-registered businesses that regularly donate goods, this introduces both an opportunity and an obligation. While the revised rules allow certain donations to be made without triggering output VAT, they also require businesses to apply the criteria correctly, verify the status of recipient charities and retain sufficient evidence to support the treatment adopted.

What changed?

From 1 April 2026, VAT-registered businesses no longer have to account for VAT when donating goods to a charity, provided those goods are used in a qualifying way. This applies where the goods are:

• Donated for onward distribution to an individual, another charity, or another organisation
• Used by the charity in carrying out its non-business activities

This represents a targeted change in HMRC’s approach, removing the requirement to account for output VAT in cases where goods are transferred without any form of consideration and are ultimately used for charitable purposes.

In practical terms, this reduces the VAT cost associated with genuine donations and provides greater certainty for businesses. However, the treatment is conditional, and businesses must still confirm that both the nature of the goods and their intended use fall within the scope of the revised rules.

What criteria determine whether relief is eligible?

A VAT-registered business could donate goods without triggering a VAT charge where a defined set of conditions has been satisfied. These conditions were designed to ensure the relief applied only to genuine charitable donations that met HMRC’s criteria.

The relief applied where:

• The goods are eligible for the relief, including meeting any applicable value thresholds
• The goods have been donated for an eligible use, either for onward distribution or use in non-business activities
• The recipient is a qualifying charity, registered with the Charity Commission, a corresponding regulator, or recognised by HMRC for charity tax purposes
• The business holds sufficient evidence to demonstrate that the goods had been donated to an eligible charity and used appropriately

To qualify, each of these conditions must be met in full. If any element was not satisfied, the default position remained that a VAT charge could arise on the deemed supply of the goods.

From a compliance perspective, maintaining appropriate records is critical. Businesses are expected to retain clear audit trails, including details of the goods donated, their value, the identity of the recipient charity and confirmation of the intended use. 

HMRC can request this evidence as part of routine compliance activity or a targeted review, and the absence of supporting documentation could result in the relief being denied.

Value limits and eligible goods

The relief is subject to defined value limits, applied on a per-item basis rather than by reference to the total value of a consignment. This distinction is important when determining whether individual goods qualify.

• The lower limit is £100 per item, applying to all goods unless a higher threshold applies
• The higher limit is £200 per item, but only applies to specific categories of goods

Where goods are donated in bulk, each unit is assessed individually. For example, if a pallet contains 100 bottles of shampoo, each bottle is treated as a separate item for valuation purposes rather than considering the pallet as a single supply.

The higher £200 threshold applies to the following categories:

• Household appliances, including cookers, fridges, washing machines, dryers and heaters
• Furniture, including mattresses
• Flooring, including carpets and rugs
• Computers, including tablets
• Mobile phones

The term “item” is not formally defined in legislation but is generally interpreted as the unit that would ordinarily be sold to an individual in a retail environment. This provides a practical basis for applying the value limits in line with normal commercial practice.

Definition of a qualifying donation

For the relief to apply, the transfer must constitute a genuine donation. This requires that:

• The goods are given freely
• The donor receives nothing in return

In addition, the receiving charity must:

• Use the goods in its non-business activities, or
• Pass them on, either directly or through another organisation, to individuals or other bodies for charitable purposes

The presence of any form of consideration alters the position. Where the donor receives a benefit in return, the transaction may be treated as a supply for VAT purposes, and the relief would not apply.

Implementing this relief into your business

The benefit of this relief sits with the donating business. As such, responsibility for applying the rules correctly rests with the donor, and a structured approach is required to enable compliance.

Businesses should:

• Confirm that the goods and their intended use meet the eligibility criteria
• Verify the status of the receiving charity
• Retain appropriate evidence to support the VAT treatment applied

Failure to meet these conditions can result in HMRC challenging the treatment and assessing VAT on the deemed supply, along with potential interest and penalties.

These changes should be considered alongside existing VAT rules affecting charities, particularly the distinction between business and non-business activities and how this impacts VAT recovery.