Following a consultation in spring this year, the chancellor has announced a welcome policy change to provide VAT relief for goods donated to charities for onward distribution to their beneficiaries or for use in the charity’s own services.
This measure is set to encourage charitable giving by making it more cost-effective for businesses to donate goods to charities. The Office for Budget Responsibility expects this to provide a VAT saving of £10m annually for businesses.
With effect from 1 April 2026, legislation will introduce an exception to the deemed supply rules for goods donated free of charge to charities. Historically, VAT would have been due on the donation of goods free of charge by businesses, however this policy will introduce zero rating for eligible goods donated to charities.
Details of the changes are yet to be published, however we already know some key details:
- There will be a standard limit of £100 per item donated, with a higher limit of £200 for specified items such as technology and household appliances.
- There is no limit to the number of goods a business can donate.
- Eligible donations must be made to registered charities, and it is possible that charities may be required to provide a certificate to confirm the relief can be applied.
- Certain goods subject to excise duty will be excluded from the relief.
- Legislation will include future-proofing powers to uplift the value limits and amend the list of goods eligible for the higher threshold.
- There are currently no plans to monitor or evaluate compliance with the policy, however this may be considered once data has been analysed and collected.
We are pleased to see that the Government has responded to the calls in the sector and embraced this relief which is sure to provide incentive to businesses and benefit to charities.
Motability Reform
With effect from 1 July 2026, VAT zero rating on top-up payments paid to lease higher value vehicles will be removed and standard rating will apply. Insurance Premium Tax (IPT) will also apply to insurance contacts within the scheme at the standard rate of 12%.
Zero rating relief will still be applied to the weekly lease costs. The IPT charges introduced will not apply to vehicles designed or substantially adapted for wheelchair or stretcher use.
VAT Timely Payments
The Government is set to release a consultation in early 2026, exploring methods for ensuring VAT liabilities are paid on time without taxpayers falling behind on their obligations. This may include requiring more of tax payments via direct debit.
Digital Prompts for VAT
The Government have announced they will be building on technology by investing £59m over the next 5 years to roll out use of real-time prompts to help taxpayers avoid errors when submitting their returns. These will include digital prompts for VAT and corporation tax taxpayers using compatible third-party software.
The aim is for the services to be available for VAT filing from April 2027.
Penalty Reform for VAT
The Government has proposed that starting from April 2027, penalties for late VAT payments will rise. The penalty rate will increase from 3% to 4% for payments that are unpaid on day 16, and from 3% to 4% for payments that remain unpaid on day 31.
VAT treatment of Land intended for Social Housing
The Government is exploring methods to encourage the development of land intended for social housing. A consultation will be launched in due course for stakeholders to provide their views. It is hoped that this will simplify much of the current complexity in this field.
VAT and Deposit Return Schemes (DRS)
The government has announced that it will streamline VAT administration for the deposit return scheme (DRS) by transferring the responsibility for unreturned deposits from individual producers to the deposit management organisation. This adjustment eliminates the obligation for producers to account for VAT and is currently being legislated in preparation for the scheme’s intended launch in October 2027.
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