New VAT Relief for Business Donations to Charity April 2026 | Complete Guide | CoreAcc Accountants

For many years, one of the more counterintuitive corners of UK VAT law has been the treatment of charitable donations of goods. A business that wanted to donate surplus stock — food approaching its sell-by date, end-of-season clothing, surplus electronics, or cleaning and hygiene products — to a local food bank, homeless shelter, or registered charity faced a peculiar obstacle: donating the goods could trigger a VAT charge on the business making the donation.

From 1 April 2026, that changes. A new VAT relief — announced as part of the government's circular economy and waste reduction agenda — removes the output VAT charge on qualifying donations of goods by VAT-registered businesses to registered charities. For community-minded business owners who have been deterred from donating surplus stock by the tax consequences, or who have been donating without realising they should have been accounting for VAT, this is a genuinely welcome development.

This article explains why the problem existed in the first place, precisely what the new relief covers, the conditions and record-keeping requirements that must be met, and how to ensure your business benefits from it correctly from April 2026 onwards.

At CoreAcc Accountants, we work with a number of clients who regularly produce surplus stock or operate in sectors where charitable donation is a natural extension of their business values. This guide is designed to help every one of them act on the new rules correctly from day one.

Disclaimer: This article is for general information only and does not constitute professional VAT or legal advice. Always seek specific advice for your individual circumstances.

1. Why Donating Goods to Charity Has Historically Triggered a VAT Charge

To understand why the new relief matters, it helps to understand the problem it solves.

Under the general principles of UK VAT, a business that purchases goods and recovers the VAT on that purchase is making an acquisition for business purposes. When that business then gives those goods away — whether as a sample, a gift, or a charitable donation — it is making a supply for no consideration. The VAT rules treat such supplies as if they were made at the market value of the goods, requiring the business to account for output VAT at the standard rate even though no money has changed hands.

The rationale is straightforward: HMRC does not want businesses to recover VAT on purchases and then make those goods available for private or non-business use without any VAT being accounted for on the way out. Without such a rule, every business could theoretically buy goods with VAT relief and then give them away personally without HMRC ever seeing the corresponding output tax.

The practical consequence for a business that wanted to donate, say, £5,000 of surplus cleaning products to a homeless charity was a VAT bill of £1,000 — the 20% output VAT on the deemed market value of the donation. The business was effectively being penalised financially for doing something socially valuable. Many chose not to donate as a result. Others donated without realising they should have been accounting for the VAT, creating a compliance risk.

There was one existing exception: the business gifts rule, which provides that a gift of goods costing no more than £50 per recipient per year can be made without triggering a VAT charge. For small promotional items — a branded pen, a notebook — this exemption is adequate. For meaningful charitable donations of surplus stock worth hundreds or thousands of pounds, it provided no relief at all.

2. What the New Relief Covers from 1 April 2026

From 1 April 2026, the new VAT relief removes the output VAT charge on qualifying donations of eligible goods by VAT-registered businesses to registered charities. The key elements of the relief are as follows.

Who can use the relief

The relief is available to VAT-registered businesses in the UK. Non-VAT-registered businesses do not charge VAT on their supplies and therefore do not face the output VAT problem that the relief is designed to address — the relief is not relevant to them, but they also face no barrier to donating goods to charity under the existing rules. Only VAT-registered businesses that would otherwise have to account for output VAT on a deemed supply can use the new relief.

What goods qualify

The relief applies to the donation of surplus goods — goods that the business holds in stock as part of its trading activities and which it is donating rather than selling. The relief is not designed for goods manufactured or acquired specifically for the purpose of donation; it is intended for genuine surplus and end-of-life stock that the business would otherwise dispose of.

Goods qualify where they are going to be used by the recipient charity in one of two ways: either given away free of charge to individuals in need as part of the charity's charitable activities, or used directly by the charity in carrying out its charitable purposes.

The first category — items distributed to individuals in need — covers the most common donation scenarios: food distributed by food banks, clothing and household goods distributed by homelessness charities, hygiene and cleaning products provided to refuges and shelters, toys donated to children's charities for distribution to families in need.

The second category — goods used by the charity itself — covers consumables and operational items used by the charity in running its activities: cleaning products used to maintain a shelter's facilities, office supplies used by a charity in its administrative work, or equipment used by a charity's staff.

What goods do not qualify

The relief does not apply where the charity intends to sell the donated goods rather than give them away or use them internally. A donation of clothing to a charity that will sell it in its charity shop does not qualify for the relief — the goods are being used by the charity for a trading activity, not a charitable purpose. This distinction matters significantly for businesses considering donations to larger charities that operate charity shops.

The relief also does not apply to services — only goods are within scope. A business donating the time of its staff to a charity, for example, does not create a VAT supply in the same way and the relief is not needed for that situation.

The value limits

Two value limits apply. The general limit is that each individual item donated must be worth no more than £100 at market value. Where the business donates goods above this individual item value, output VAT remains chargeable on the excess.

A higher limit of £200 per item applies specifically to goods that address digital poverty — laptops, tablets, smartphones, and similar digital devices donated to charities that provide technology access to people in need. The government recognised that the standard £100 limit would have excluded most meaningful technology donations given the market value of even basic laptops and tablets.

These are per-item limits, not per-donation limits. A business donating 200 items worth £80 each can use the relief for the full donation — each individual item is below the £100 threshold. A business donating a commercial refrigerator worth £1,500 to a food bank for use in its operations cannot use the relief for that item.

3. The Interaction with Corporation Tax: A Double Benefit

The VAT relief is the headline change, but it is worth understanding the Corporation Tax position alongside it — because together the two create a genuinely valuable combined benefit for donating businesses.

When a business donates goods to charity, the cost of those goods remains deductible for Corporation Tax purposes. The donation is treated as a trading expense incurred in the course of the business — specifically as a loss on disposal of trading stock. The business deducts the cost of the donated goods from its taxable profit, saving Corporation Tax at the applicable rate (19% or 25% depending on profit level).

Under the old rules, this Corporation Tax deduction was partially offset by the output VAT charge — the business saved CT on the cost of the goods but then faced a VAT bill on their market value. Under the new rules, where the VAT relief applies, the Corporation Tax deduction on the cost of goods is available without any corresponding output VAT charge. The combined effect is a genuine tax saving on the donation.

Worked Example 1: The Old Rules vs. The New Relief

Horizon Hygiene Ltd is a VAT-registered wholesaler of cleaning and hygiene products. It has surplus stock with a cost price of £4,000 and a market value of £7,000. It wants to donate this stock to a local homeless shelter registered as a charity.

Under the old rules (before 1 April 2026):

The donation triggers output VAT of £1,400 (20% of £7,000 market value). The Corporation Tax deduction on the £4,000 cost saves £1,000 at the 25% CT rate. Net cost of donating: the £4,000 cost of goods, plus £1,400 VAT, minus £1,000 CT saving = £4,400 net cost.

Under the new relief (from 1 April 2026), assuming all items are individually valued below £100:

No output VAT is chargeable. The Corporation Tax deduction on the £4,000 cost saves £1,000 at 25%. Net cost of donating: the £4,000 cost of goods, minus £1,000 CT saving = £3,000 net cost.

The new relief saves Horizon £1,400 in VAT on a single donation — transforming a decision that cost the business £4,400 on a net basis into one that costs only £3,000. Over a year of regular donations, for a business with significant surplus stock, this is a material saving.

4. Comparing Goods Donations with Cash Donations to Charity

The new VAT relief makes goods donations significantly more attractive, but it is worth comparing the two main forms of business charitable giving to understand where each works best.

Cash donations

A cash donation from a company to a charity through the Gift Aid system is deductible against Corporation Tax as a charitable donation — the company deducts the gross donation from taxable profit and saves CT at the applicable rate. There are no VAT consequences for a cash donation. Gift Aid allows the charity to reclaim basic rate tax on qualifying donations, but this is a benefit to the charity, not to the donating company.

For a company donating £5,000 in cash at the 25% CT rate, the net cost after CT relief is £3,750. The charity receives £5,000 (plus Gift Aid if qualifying).

Goods donations under the new relief

For a company donating goods with a cost price of £5,000 and a market value of £8,000 to a qualifying charity under the new relief, the CT deduction is on the cost price of £5,000 — saving £1,250 at 25%. No VAT is chargeable. The net cost is £3,750. The charity receives goods worth £8,000 at market value.

The goods donation therefore achieves the same net cost as a cash donation but delivers considerably more value to the charity in economic terms — £8,000 of resources versus £5,000 of cash. Where a business has genuine surplus stock, goods donation consistently delivers more charitable value per pound of net cost than a cash donation.

5. The Record-Keeping Requirements

HMRC's relief is conditional on proper records being maintained. This is not a relief that applies automatically when goods leave the building — it requires documentation that demonstrates the conditions have been met. Failing to maintain adequate records means the relief could be denied on an HMRC review, and the output VAT would become payable retroactively.

Evidence of charity registration

The donating business must obtain evidence that the recipient is a registered charity. The simplest form of this evidence is the charity's registered charity number, which can be verified on the Charity Commission's public register at gov.uk. The Charity Commission's register covers England and Wales; the Office of the Scottish Charity Regulator (OSCR) covers Scotland; and the Charity Commission for Northern Ireland covers NI. For donations to very large charities, the charity number will typically appear on their correspondence and website.

It is worth noting that some organisations operate for charitable purposes without being formally registered charities — community interest companies, social enterprises, and some religious organisations, for example. These do not qualify as registered charities for the purposes of the VAT relief, and donations to them will not benefit from it.

The donation certificate

HMRC requires a written certificate from the recipient charity confirming how the goods will be used. The certificate should confirm the charity's name and registered number, a description of the goods received, the date of receipt, and a statement confirming that the goods will be given away free of charge to individuals in need or used directly in the charity's charitable activities — not sold.

The certificate must be obtained before the VAT return covering the period of the donation is submitted. If the certificate is not in place, output VAT must be accounted for. Obtaining a signed certificate from the charity at the point of donation — not retrospectively — is the safest approach.

Your own donation records

In addition to the charity's certificate, the donating business should maintain its own records of each donation: a description of the goods donated, the cost price at which the goods were held in stock, the market value at the time of donation, confirmation that each individual item was below the relevant value threshold, and the date of the donation.

These records form part of the business's VAT records and should be retained for at least six years in the same way as other VAT documentation.

6. How the Relief Works on Your VAT Return

For most businesses, the practical effect of the new relief is that qualifying charitable donations are simply omitted from Box 1 of the VAT return — the output VAT box. The donation does not appear as a taxable supply. The input VAT originally recovered on the purchase of the goods is not clawed back, and no adjustment is needed to Box 4.

This is the key distinction from the existing partial exemption and non-business use adjustment rules, which do require input VAT recovery to be restricted where goods are put to a non-business purpose. The new charitable donation relief is a standalone provision that allows input VAT recovery on the original purchase to stand, while disapplying the output VAT charge on the donation.

Where a business donates goods that include individual items above the value limit — mixed with qualifying items in a single donation — output VAT is still chargeable on the high-value items that fall outside the relief. The business must apportion the donation, accounting for output VAT on the non-qualifying portion and claiming the relief on the qualifying portion. This apportionment must be documented and reflected correctly on the VAT return.

Worked Example 2: Mixed Donation Including a High-Value Item

Cleartech Solutions Ltd donates a batch of surplus IT equipment to a digital inclusion charity. The batch comprises ten refurbished laptops with a market value of £180 each and three used desktop computers with a market value of £120 each.

The laptop value of £180 each is below the £200 digital poverty threshold — the relief applies to all ten. The desktop computer value of £120 each exceeds the general £100 threshold and does not qualify as digital poverty equipment — the relief does not apply to these three items.

Output VAT is chargeable on the three desktop computers at the market value of £120 each: 20% × £360 = £72 of output VAT to account for on the VAT return. The ten laptops are fully within the relief — no output VAT is chargeable on them. The donation certificate from the charity covers the entire donation; the internal apportionment and the output VAT on the desktops are reflected in Cleartech's VAT records.

7. The Sectors That Benefit Most

While the relief is available to any VAT-registered business with eligible surplus goods, certain sectors are likely to find it disproportionately valuable.

Food producers, retailers, and wholesalers have long faced the challenge of surplus and short-life stock. Food that cannot be sold before its use-by date has historically been written off or donated — the latter creating a VAT charge under the old rules. From April 2026, food donations to food banks, community kitchens, and similar charities qualify for the relief, provided the food is to be distributed free of charge to individuals in need. The £100 per item limit is rarely relevant for food — individual food items are almost never valued above this threshold.

Hygiene and personal care product businesses — wholesalers, distributors, and manufacturers of toiletries, cleaning products, and personal hygiene items — frequently have surplus from damaged packaging, short-dated batches, or overstocked lines. Donations of these items to refuges, shelters, and hygiene banks are a natural fit for the relief.

Technology and electronics businesses — both retailers and corporate IT teams disposing of end-of-life equipment — can now donate devices to digital inclusion charities at the £200 per item threshold, covering most laptops and many tablets. For businesses with regular hardware refresh cycles, the ability to donate rather than dispose of equipment without a VAT penalty is both socially valuable and commercially sensible.

Clothing and household goods retailers, including those with significant end-of-season or returned stock, can now donate surplus goods to homelessness charities, clothing banks, and similar organisations without the VAT penalty. The timing of donations — clearing end-of-season stock to a charity rather than selling it through a clearance channel at negligible margin — now makes clear commercial and social sense simultaneously.

Frequently Asked Questions

What is the new VAT relief for charitable donations and when does it take effect?

From 1 April 2026, VAT-registered businesses can donate qualifying surplus goods to registered charities without accounting for output VAT on the donation. Previously, donating goods to charity could trigger a VAT charge because the donation was treated as a supply at market value. The new relief disapplies that charge where the donation meets the qualifying conditions.

Does my business need to be VAT registered to use this relief?

Yes. The relief addresses an output VAT charge that arises only for VAT-registered businesses. Non-VAT-registered businesses do not charge VAT on their supplies and do not face the output VAT problem that the relief solves. They can donate goods to charity without any VAT consequences under the existing rules.

What goods qualify for the relief?

Qualifying goods are surplus goods that the business holds in its trading stock — not goods acquired or manufactured specifically for donation. The goods must be donated to a registered charity for use in its charitable activities, either by distributing them free of charge to individuals in need, or by using them directly in the charity's operations. Goods intended for sale by the charity — for example, in a charity shop — do not qualify.

What are the value limits?

The general limit is £100 per individual item at market value. Goods individually valued above £100 do not qualify for the relief and remain subject to output VAT. A higher limit of £200 per item applies specifically to digital devices — laptops, tablets, smartphones, and similar technology — donated to charities addressing digital poverty. These limits apply per item, not per donation. A single donation of many qualifying items below the threshold is fully within the relief.

Does my business lose the input VAT it recovered when it purchased the goods?

No. The new relief allows the input VAT recovery on the original purchase to stand. The business does not need to make any adjustment to input VAT when making a qualifying charitable donation. This is one of the most significant features of the relief — the full input VAT is retained while no output VAT is charged on the donation.

What documentation do I need to keep?

You need two things. First, evidence that the recipient is a registered charity — this can be the charity's registered number verified against the Charity Commission's public register. Second, a written donation certificate from the charity confirming how the goods will be used — specifically, that they will be distributed free of charge to people in need or used in the charity's charitable activities. You should also maintain your own records of each donation including the description of goods, cost price, market value, and date of donation. All records should be retained for at least six years.

Can I donate to a charity shop and use the relief?

No. Where the charity will sell the donated goods — through a charity shop or any other means — the donation does not qualify for the relief. The relief applies only where goods will be given away free of charge to individuals in need, or used by the charity directly in its charitable activities. Donations to charity shops remain subject to output VAT at market value under the existing rules.

Is the Corporation Tax treatment affected by the new VAT relief?

No. The Corporation Tax treatment of charitable goods donations remains unchanged. The cost of donated goods continues to be deductible against Corporation Tax as a trading expense — specifically as a loss on disposal of trading stock. The new VAT relief means that this CT deduction is no longer partially offset by an output VAT charge, so the combined tax benefit of donating qualifying goods is more favourable than before.

What if I donate goods with a mix of qualifying and non-qualifying items?

Where a single donation includes some items within the value limits and some above them, you must apportion the donation. The relief applies to the qualifying items; output VAT at the standard rate must be accounted for on the non-qualifying items at their market value. This apportionment must be documented in your VAT records and reflected correctly on your VAT return.

Can I donate to overseas charities and use the relief?

The relief as announced applies to donations to charities registered in the UK — either with the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator, or the Charity Commission for Northern Ireland. Donations to organisations outside the UK registered charity framework do not fall within the relief, though the VAT treatment of such donations depends on whether the supply is treated as zero-rated or outside scope of UK VAT under the place of supply rules. If you are considering substantial donations to overseas organisations, take specific advice before proceeding.

Does the relief apply to digital assets or services as well as physical goods?

No. The relief covers physical goods only. Donations of services, digital assets, software licences, or intellectual property are outside scope. A business donating the services of its staff to a charity, for example, does not create a VAT supply in the same way and the relief is not needed for those situations.

How do I claim the relief on my VAT return?

Qualifying donations are simply excluded from Box 1 of your VAT return — you do not account for output VAT on them. No special claim form or notification to HMRC is required. The relief is applied by omitting the output VAT charge in your records and on the return. You must be able to demonstrate, through your records and the charity's donation certificate, that the conditions were met if HMRC asks.

What CoreAcc Accountants Can Help You With

At CoreAcc Accountants, we see the new charitable donation VAT relief as one of the most practically accessible tax improvements for community-minded businesses in recent years. For clients in retail, food, wholesale, technology, and manufacturing who regularly have surplus stock, the relief removes a genuine barrier to doing good.

We can help you with every aspect of using the relief correctly.

Identifying qualifying goods in your stock: we will work through your surplus or end-of-life stock to identify which items qualify under the value limits and what the market value assessment should be.

Selecting the right recipient charities: not every organisation that does good work qualifies as a registered charity for these purposes. We can help you verify the registered status of the charities you want to support and ensure your records reflect the correct registration details.

Drafting donation certificates: we can provide a template donation certificate that covers everything HMRC requires the charity to confirm, making the documentation process straightforward for both parties.

Ensuring correct VAT return treatment: we will ensure that qualifying donations are correctly excluded from your output VAT calculation, and that any mixed donations with high-value items above the threshold are correctly apportioned.

Incorporating donations into your Corporation Tax planning: where charitable giving is a regular part of your business activity, we can ensure it is properly accounted for in your annual accounts and CT return.

Get in Touch

The new VAT relief takes effect on 1 April 2026 — giving businesses just a few weeks to understand the rules and ensure their processes are ready. If your business holds surplus stock and you have been deterred from donating it by the VAT consequences, or if you have been donating without considering the VAT implications, now is the time to review your position.

Contact CoreAcc Accountants today for a conversation about how the new relief applies to your business and the charities you support.

CoreAcc Accountants is an ACCA-accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was published in February 2026 and reflects the VAT charitable donation relief taking effect from 1 April 2026. It does not constitute professional VAT or legal advice. Always seek specific advice for your individual circumstances.

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