VAT anomaly holding back donations to people in need

This would bring the rules in line with existing reliefs, which provide VAT relief for donated goods that charities would sell on such as through their charity shops.

The current VAT relief supports the donation of millions of products each year to charities and volunteer organisations, which are often sold on. But the regulations require businesses to pay VAT when donating goods to directly support people in need, which is holding back the full potential of excess inventory from being donated at scale. Without these changes, it would be more cost-efficient for retailers to store or — in the worst cases — destroy items than it would be for them to donate them.

The organisations have written to the Chancellor ahead of the spring budget on 15 March, asking for these changes to be made to allow businesses to increase the amount of inventory they donate.

The letter noted that: “Making this change to the VAT rules will remove any incentive within the tax system to dispose of rather than donate usable products, with knock on benefits for the environment and the Government’s ambitions to move towards a circular economy.”

In addition to increasing the volume of product donations, this would support the government’s ambitions to cut waste and move to a circular economy. Robust safeguards against the potential for abuse can be implemented by applying the same restrictions as the current VAT relief, which would limit its application to donations made to charities recognised by HMRC for tax purposes.

Helen Dickinson OBE, chief executive of the BRC, said businesses and charities stand ready to work together to increase the volume of direct donations and establish new schemes to help smaller charities access more everyday essentials they can pass on to those struggling to make ends meet.

“This difference in treatment for goods for onward sale compared to those being donated directly to those in need must surely be an anomaly rather than a purposeful policy. With this reform, the Chancellor can help deliver [an increased] support for those who need it most at a time when many are suffering from the cost-of-living crisis,” she said.

Steve Butterworth, CEO of Neighbourly, said local community charities are facing increased demand as a result of the cost-of-living crisis and economic uncertainties.

“Our autumn community survey of over 1,300 local charities highlighted that 60 per cent had seen a drop in food donations and 65 per cent a drop in financial support,” he said.

“Product donations at a local level are a critical resource in helping these life-line charities, while also delivering huge environmental benefits by reducing waste.”

Richard Bray, chair of the Charity Tax Group, said this is a simple and practical measure that has the potential to deliver huge benefits to those struggling with the cost-of-living crisis in the country as well as reducing waste.