Key HMRC 2026 tax rule change confirmed | Personal Finance | Finance
A longstanding tax imposed on businesses making charitable donations has been scrapped following a rule change, according to accountancy and advisory firm Azets. The firm is reminding businesses that they can now donate goods to registered charities without incurring a VAT charge.
The development comes amid a period of declining charitable giving. The Charities Aid Foundation (CAF) recently revealed that public donations to good causes plummeted by more than £1.4bn last year. Millions of people said they can no longer afford to give, with just half of the population having donated to charity last year, down from 61 per cent a decade earlier.
Prior to the recent change, if a VAT-registered business made a donation having already reclaimed the VAT paid on those goods, the contribution was ordinarily treated as though the business had made a sale. This meant the business was typically required to pay VAT to HMRC based on the value of the donated goods.
Siobhan Holmes, an Azets partner specialising in not-for-profit accounting, said: “This is excellent news for charities, which we know are receiving less in donations. Essentially, HMRC has confirmed that for VAT-registered companies, no VAT will be due when eligible goods are donated free of charge to registered charities, where those goods are used to support people in need or are to deliver charitable services.
“The changes remove the VAT that previously applied because the business had reclaimed the amount when it originally bought the goods. However, this relief does include a monetary cap per item and charities cannot reclaim VAT on the donated goods.
“Many will be unaware that donations were liable for VAT, but there will also be companies that might have disposed of goods rather than donated them because of the tax they would have to pay.
“We want to get the message out to businesses that they can now donate to charities without falling foul of HMRC.
“Office supplies and equipment, or surplus stock, is often welcomed by charities and there will be other goods that will be of great use to them.
“For their part, charities should make a record of donated goods – especially any expensive items – and keep an audit trail.”
Azets has additionally cautioned charities and not-for-profit organisations to ensure their procedures and records are thoroughly robust in light of new and heightened compliance activity. HMRC has launched a programme of Structured Risk Reviews (SRRs) across the charity and not-for-profit sectors, indicating a more rigorous and data-driven approach to scrutiny.
