Autumn Budget 2025: removing VAT on donated goods

On 26 November 2025, the UK government announced in its Autumn Budget that VAT will be removed from more business donations.

This change affects businesses that donate goods to registered charities, but more importantly, charities will be able to tell potential donor businesses that they won’t face a VAT charge on their donations.

Changes to VAT on donated goods

Goods given away are usually treated as a supply and subject to VAT at the standard rate.

Currently, under the VAT Act 1994, Schedule 8, there’s very limited VAT relief for goods donated to charities that sell those goods on.

From 1 April 2026, new legislation will remove the output tax charge for goods donated to charities for onward distribution to people in need or for use in the charity’s services.

Until the exact rules are published, restrictions and doubts remain, but it’s an area to keep an eye on. The new provisions will be included in the Finance Bill 2025-26, with further detail to be set out in HMRC guidance as necessary.

Limitations and doubts

The relief will apply to ‘eligible goods’ and within value limits only. Certain goods subject to excise duty will be excluded from the relief.

There’s also concern that the policy paper suggests amending Schedule 4, rather than Schedule 8 of the VAT Act. The risk is that donations of goods won’t be zero-rated, but treated as not a supply at all. The difference could be important:

• If goods are zero-rated, the VAT on attributable costs can be claimed
• If there’s no supply of goods at all, the VAT on attributable costs can’t be claimed.

If the new legislation simply removes the requirement to account for VAT on donated goods (standard rate applied to the cost value),but requires repayment of the VAT originally claimed on costs to HMRC, the relief could be meaningless. It’s hard to believe that this is the government’s intention, but the detail will need careful analysis when the new legislation is published.

Overall, this is positive news for the charity sector and shows the government appears to be delivering changes to VAT.