VAT anomaly holding back donations to people in need

Businesses, trade associations and charities have come together to urge the Chancellor to unlock vital support for families who are impacted by the rising cost-of-living. They ask the Chancellor to provide VAT relief on goods donated to charities, where these goods will later be provided free of charge to people in need, such as at food banks or emergency relief. This would bring the rules into line with existing reliefs, which provides 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.

Writing to the Chancellor ahead of the Spring Budget on 15 March, organisations including the British Heart Foundation, Charity Retail Association, the British Retail Consortium, and Amazon, have asked for these changes to be made to allow businesses to increase the amount of inventory they donate. The letter notes 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 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 a increase support for those who need it most at a time when many are suffering from the cost-of-living crisis.”

Steve Butterworth, Chief Executive 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% had seen a drop in food donations and 65% a drop in financial support. Product donations at a local level are a critical resource in helping these life-line charities, whilst 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. We urge the Chancellor to introduce it without delay.”

Clare Bottle, Chief Executive of the UK Warehousing Association, said:

“The levy of VAT on direct charitable donations was brought to our attention by UKWA members who wish to give back to the community and support a sustainable, circular economy. As long as this triggers an unwelcome tax burden, businesses are actively disincentivised to take these positive steps, indeed they are encouraged to dispose of rather than donate products.

We are keen to support businesses whose commitment is to sustainability and charitable giving, so on behalf of the warehousing sector, UKWA urges the Chancellor to seize the opportunity of the Spring Budget to simplify the tax burden on businesses, facilitate sustainable practices and grow charitable initiatives to support those in need, which is surely critical in the current climate.”

Rob Love, Chief Executive of Crowdfunder, said:

“Crowdfunder exists to tackle society’s challenges by making ideas happen and we have raised close to £300 million for charities, enterprises and individuals wanting to make a positive difference. As a rewards-based platform, where people pledge on a project in return for a ‘reward’, which is often a product, we know the VAT restrictions can put a ‘brake’ on the propensity to give rewards. We believe removing the VAT on products would remove complexity for projects, especially those helping tackle the Cost-Of-Living Crisis, and it would help turbo charge charitable giving. We’d encourage the Secretary to State to back this initiative.”

Neil Heslop OBE, Chief Executive of the Charities Aid Foundation, said:

“Charities across the UK are supporting communities at the sharp end of the cost-of-living crisis, while coping with rising costs and falling income themselves. We know that businesses want to help, and this simple measure could encourage them to donate rather than dispose of much-needed goods that charities simply cannot afford.”

Sarah Vibert, CEO of NCVO (National Council for Voluntary Organisations), said:

“The Chancellor promised a compassionate and fair approach to tackling the cost of living crisis. Introducing this measure would be both compassionate and fair to businesses, charities and our communities during this difficult time. Many of our members – like the communities they support – are struggling and this kind of action from the Treasury will help as they continue to deliver vital services for people who really need them.”