Enhancing Charitable Contributions through VAT Relief

The government is contemplating a new initiative that would amplify the impact of charitable donations through a VAT relief. This proposed VAT relief aims to motivate businesses to donate everyday items to charities without incurring a VAT obligation. A consultation period of 12 weeks on the potential changes is set to commence before 23 July 2024.

Under the current rules, firms do not pay VAT on any goods they donate that are subsequently sold, such as clothing, hygiene products, and cleaning supplies. However, if these items are not sold and are instead given free of charge to those in need, VAT must be considered.

The suggested relief would stimulate donations of low-value household items like:

• Personal hygiene products (soap, toothpaste, toothbrushes, shower gel, toilet paper)
• Used items from hotels (like sheets, kettles)
• Cleaning materials – including laundry soap

The proposed VAT relief will exclude goods donated for the charity’s own use, such as new IT equipment, to avoid potential VAT evasion. The outcome of the consultation and the confirmation of any amendments will be disclosed at an upcoming fiscal event.

VAT Relief: A New Incentive for Routine Charitable Donations

The government will launch a consultation on VAT relief for regular charitable donations before 23 July 2024. This announcement was made by Nigel Huddleston, the Treasury’s tax minister, on 18 April 2024.The proposed VAT relief aims to encourage businesses to donate everyday items to charity. At present, companies do not pay VAT on goods they donate that are subsequently sold. However, if these items are given free of charge to those in need, VAT must be paid.

The Treasury announced today that it will consult on a new VAT relief for donations of low-value household goods to stimulate donations. Nigel Huddleston, Financial Secretary to the Treasury, stated that the tax system should support, not hinder, donations to charity. The proposed VAT relief could include any item that a household might find useful.

The proposed VAT relief is set to reduce the financial burden of philanthropy, enabling companies to amplify their societal contributions without the hindrance of additional tax costs or the administrative task of valuing donated goods. We eagerly anticipate collaborating with the government to develop a relief mechanism that optimizes the potential for positive transformation in our communities and simplifies the tax system.

Over recent years, a hurdle has emerged for businesses wishing to donate goods to charities for distribution to those in need, as they have been required to account for VAT on donations not intended for onward sale.

Treasury Announcement

The Treasury has announced today that it will initiate a 12-week consultation before 23 July 2024. The consultation will explore the introduction of a UK-wide VAT relief for a variety of low-value household goods that businesses donate to charities to distribute free of charge to those in need. The outcome of the consultation will be disclosed at a subsequent fiscal event.

The proposed VAT relief has been met with positive responses from various industry leaders. Helen Dickinson OBE, who leads the British Retail Council, expressed her approval of the consultation into the unequal tax treatment of goods for onward sale compared to those being donated directly to those in need. She voiced her hope that the consultation will lead to a significant change that will enhance the charitable work of businesses in the UK.

On the other hand, Andy Scott, the Principal Tax Adviser at the Confederation of British Industry, welcomed the government’s announcement to consult on a new VAT relief for charitable donations of everyday items. He believes this progressive step aligns with their calls for a smart tax system that incentivises corporate social responsibility and reduces bureaucratic hurdles for businesses wishing to donate their unsold stock to charitable causes. By eliminating the VAT penalty on donated goods, Scott believes businesses will be more motivated to support the growth of the civil society sector and the circular economy.

Additional Information:

• The new VAT relief will exclude goods donated for the charity’s own use, such as new IT equipment, to prevent potential VAT evasion. For instance, a commercial entity purchasing equipment and then donating it to a charitable branch to evade VAT. The consultation will solicit opinions on this matter.
• VAT, the UK’s third-largest tax, is projected to generate £171 billion in revenue in 2023/24. Taxation is a crucial source of income that supports the UK’s schools, hospitals, and other essential services that we all depend on. VAT, designed as a broad-based consumption tax, requires any relief requests to be carefully weighed against the need to manage public finances responsibly by directing support where it is most needed.
• Today’s announcement is part of the Tax Administration and Maintenance Day. More details can be found in the complete Written Ministerial Statement.
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In summary, the proposed VAT relief is seen as a positive step towards encouraging businesses to make more charitable donations, thereby helping those in need and contributing to a more sustainable economy. The consultation period will provide an opportunity for further discussions and refinements to ensure the relief is implemented effectively and achieves its intended goals. The outcome of the consultation will be eagerly awaited by all stakeholders.

Thankyou for reading this article. For any enquiries please don’t hesitate to contact:

Jane Deeks

Managing Director

jane@deeksvat.co.uk

+44 7710553831