Truro firm Azets explains new VAT relief on charity donations

Plenty of Cornwall businesses have surplus stock, spare office equipment or unsold goods sitting in storage. Until recently, handing some of those items to a local charity could leave the business with a tax bill.

That charge has now gone. A long-standing tax on businesses donating goods to charities has been removed, an accountancy and advisory firm with an office in Cornwall has said. Azets, which has an office in Truro, wants to remind local businesses that they can now give goods to registered charities without paying VAT.

A change at a difficult time for charities

The news lands as donations across the country are falling. The Charities Aid Foundation recently revealed that public donations to good causes dropped by more than £1.4 billion last year. Millions of people said they can no longer afford to give, and just half of people donated to charity last year, down from 61% a decade earlier.

Siobhan Holmes, an Azets partner who specialises in not-for-profit accounting and covers the South West, said the change matters for the area.

“This is excellent news for local charities, which we know are receiving less in donations,” she said.

How the old rule worked

Until the recent change, if a VAT-registered business made a donation and had already claimed back the VAT it paid on those goods, the donation was normally treated as if the business had made a sale. That meant the business usually had to pay VAT to HMRC based on the value of the goods it donated.

Siobhan explained what has now changed.

“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,” she said.

“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.”

She said the old rule had pushed some firms to throw goods away rather than give them away.

“Many will be unaware that donations were liable for VAT, but there will also be companies who might have disposed of goods rather than donated them because of the tax they would have to pay,” she said.

“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.”

What charities are being told to do

Azets had advice for the charities on the receiving end too.

“For their part, charities should make a record of donated goods, especially any expensive items, and keep an audit trail,” Siobhan said.

The firm also warned charities and not-for-profit organisations to make sure all their procedures and records are watertight, pointing to new and enhanced compliance activity. HMRC has started a programme of Structured Risk Reviews across the charity and not-for-profit sectors, signalling a more intensive and data-driven approach to oversight.