The new VAT budget is set to increase business contributions and cut landfill waste
The major VAT reform unveiled in the budget is expected to unlock millions of pounds worth of surplus cash for charity and significantly reduce the volume of usable products sent to landfill.
From 1 April 2026, businesses will be able to donate goods to registered organizations without incurring VAT, removing the limited tax barrier imposed on companies that refuse to donate goods that are negative, returnable or redundant.
Under current rules, gifting goods – even to charity – can generate VAT in a “deemed supply” deal, which means many firms choose to destroy the tax liability. The government says that the new will remove that charge entirely for contributions made to HMRC-written.
This decision follows a comprehensive consultation that supports strong support from existing organizations, vendors, manufacturers and bodies to reduce waste. The Treasury said that respondents “all over the world” highlighted the existing VAT rate as the main factor behind unnecessary waste.
HMRC has explored extending relief to public enterprises and unregistered public groups, but ultimately limited the eligibility of written donations due to their governance and reporting requirements, to help reduce the risk of fraud. Importantly, the relief will be open to aid organizations of all kinds, not just those involved in the fight against poverty.
The scheme will use a simple tiering system:
• Limit of £100 per Item for most donated goods.
• A limit of £200 for household items including white goods, furniture, computers, phones and tablets – targeting support for families facing digital or physical poverty.
Goods dependent on the tender, such as alcohol and tobacco, are not included.
Aid includes donations that are used directly in charitable activities – for example, hygiene products donated to a shelter – and goods that are recycled for people and families in need.
To keep administrative light, valuation will be automatic at cost price, and businesses are allowed to enter a lower figure for acquiring old or reduced stock. Documentary requirements are minimal: proof of delivery to the appropriate administration and a simple certificate guaranteeing fair use. Aid organizations will not face new compliance burdens, such as record keeping obligations that remain entirely with the donor business.
HMRC will publish full guidance on the technology before the launch of 2026, but the Treasury believes the policy can deliver a circular economy, reduce the pressure on land filling, and strengthen the supply of essential goods.
Greg McCnally, founding partner of VAT Consultancy Vita, welcomed the change, calling it a “long overdue fix to a flawed system” that will help businesses reduce waste while supporting grassroots organizations across the country.
