New VAT relief for food bank donations by businesses

The government has announced a forthcoming new VAT relief aimed at encouraging businesses to donate stocks of low value, personal and household goods to charity.

Prompted by lobbying from the charity sector, a consultation will be launched this summer to ask stakeholders for their views on the scope and structure of the relief. While little detail is available at this stage, a statement by the Treasury suggests that the new measure will apply to donations made by businesses of low value household goods to charities (eg food banks) to be passed on to those in need. Examples of items covered by the relief include toiletries and other personal hygiene products, domestic cleaning supplies and second-hand items from hotels, such as bedsheets.

This announcement appears to be in response to complaints about how the current VAT rules discourage this type of charitable giving. Currently, VAT registered traders are only entitled to recover VAT on goods and services they buy that are used in their business. If they donate surplus or outdated stock, they are required to pay back VAT previously claimed on those items to HMRC. Not only is that a financial disincentive to giving, it also creates the administrative burden of having to calculate how much VAT to repay and record it on the business’s VAT return.

The relief is expected to work by excusing businesses from that requirement for a very specific list of low value items to be passed onto those in need. Goods donated for use by the charity itself (e.g. used IT equipment) will not be included.

More details will follow when the consultation period begins. A consultation document is due to be published before the end of July 2024, so charities and businesses dealing with these goods should get ready to give HMRC their views on how the relief should be designed.