A major VAT reform unveiled in the budget is set to release millions of pounds worth of surplus goods to charity and significantly reduce the amount of usable products ending up in landfill.
From April 1, 2026, businesses will be able to donate goods to registered charities without incurring VAT. This removes a long-criticized tax hurdle that has prevented companies from giving away unsold, returned or surplus items.
Under current rules, giving away goods – even to a charity – can trigger VAT on a “deemed supply” basis, meaning many businesses are choosing to destroy stock rather than incur a tax liability. The government says the new relief will completely eliminate these costs for donations to HMRC-registered charities.
The decision followed extensive consultation, which received strong support from charities, retailers, manufacturers and waste reduction organizations. The Treasury said respondents “unanimously” highlighted the existing VAT burden as a key factor driving unnecessary waste.
HMRC considered extending relief to social enterprises and unregistered community groups, but ultimately restricted eligibility to registered charities due to their governance and reporting obligations, which helped to minimize the risk of fraud. Importantly, the aid is open to charities of all kinds, not just those working to combat poverty.
The system uses a simple two-tier rating system:
• A limit of £100 per item on most donated goods.
• A limit of £200 per item on essential items including household appliances, furniture, computers, phones and tablets – targeted support for households experiencing digital or material poverty.
Excise goods such as alcohol and tobacco are excluded.
The aid includes donations that go directly to charitable causes – for example, supplying hygiene products to an animal shelter – as well as goods that are redistributed to individuals and families in need.
To minimize administrative burdens, valuation will be based on cost price by default, with companies permitted to apply a lower value for older or worn-out inventory. Documentation requirements are minimal: proof of delivery to a qualified charity and a simple certificate confirming charitable use. Charities will not face new compliance burdens because the responsibility for record keeping falls entirely on the donating company.
HMRC will publish full technical guidance ahead of its rollout in 2026, but the Treasury expects the guidance could free up a significant amount of items currently being thrown away, supporting the circular economy, reducing pressure on landfill and boosting the supply of vital goods to UK charities.
Greg McNally, founding partner of sales tax consultancy VITA, welcomed the change, calling it “a long overdue fix to a flawed system” that will help businesses reduce waste while supporting grassroots organizations across the country.
