From 1 April 2026, a new VAT relief allows businesses to donate surplus goods to registered charities for free distribution or use in charitable services without triggering a VAT charge.
The relief applies to goods up to £100 per item - excluding alcohol, tobacco and vaping products. A higher £200 per item limit will apply to household appliances, furniture, flooring and computers.
This reform removes a long‑standing inconsistency in the tax system and delivers a practical reduction in the cost of doing business, supports communities and benefits the circular economy.
The challenge: cost, complexity and uncertainty
Businesses need an environment where costs are minimised, regulatory rules are clear and decisions make economic sense. Yet under the previous VAT rules, donating surplus goods could trigger a VAT charge of up to 20%, alongside additional compliance requirements.
For many manufacturers, wholesale distributors and retailers, this created an irrational position - donating goods to charity could be more costly than wasting them, even where those goods were perfectly usable.
What we did: making the case for reform
Cutting the administrative burden on business is a core CBI priority. We worked closely with members across sectors, charities and distribution partners, HMRC and HM Treasury officials – with support from former Prime Minister The Rt. Hon. Gordon Brown CH - to build a strong evidence base showing how VAT complexity was discouraging in‑kind giving and to demonstrate how a simpler regime could operate effectively.
The result was a targeted change – announced at the 2025 Budget - that removes a cost pressure without creating onerous compliance for businesses and charities.
What it means for business: practical impact
The new relief unlocks a significant opportunity. Supported by a national YouGov survey of over 1,300 businesses, CBI analysis estimates that the change will generate £72.5m in additional goods donations in 2026/27 alone.
Currently, 13% of UK businesses donate goods to charity. Among those firms, the value of donated goods is expected to rise by an average of 2.1%, and crucially, 12.5% of businesses that do not currently donate say they would start doing so – all from the removal of the VAT barrier.
The goods expected to be donated range from food products (£6.9m), clothing (£9.7m), hygiene products (£4.1m), household essentials (£8.7m), furniture, electrical appliances and gardening products (£19.6m), health products (£8.3m), to children’s toys and sports equipment (£9.9m) - delivering real social impact.
For businesses, this means simpler tax treatment with lower VAT and compliance costs, and managing unsold stock more efficiently with a stronger commercial case for donation over waste.
Working with charities: how to get involved
Businesses can now donate with confidence by working with established charity partners and distribution networks across the UK including The Multibank, The Felix Project, Neighbourly and In Kind Direct.
These partners can support logistics, due diligence and onward distribution, helping businesses donate at scale while minimising administrative effort.
What’s next: keeping pressure on costs
This reform shows what can be achieved when government and business work together to cut red tape and reduce unnecessary costs. But the challenge of tackling the high cost of doing business remains.
The CBI will continue pressing for:
- Further tax simplification
- Sustained action to cut administrative burdens
- Stable, predictable policy that supports investment and growth.
CBI CEO, Rain Newton Smith, said:
“This has the potential to make a multi-million pound difference to charities every year, now that businesses can provide surplus stock tax free.
“Previously wasted items including clothes, bedding and toiletries can now be donated without paying VAT, allowing businesses large and small to make a real difference to the lives of people in need.”
Get involved
We are keen to understand the impact of the new VAT relief on your business and to hear your thoughts on other parts of the tax system that could be simplified. Please get in touch with Andrew Scott, CBI Principal Tax Adviser.
For further information, please see HMRC’s guidance (sections 5.5.5 to 5.5.11): How VAT affects charities (VAT Notice 701/1) - GOV.UK. Businesses and stakeholders should take professional advice as appropriate.
