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Tax & Compliance26 March 2026 · Updated 12 October 202617 min read

Donating goods to schools and charities: VAT and tax in 2026

Donating physical goods to charity - known as "gifts in kind" - can be more tax-efficient than cash donations. Here's everything UK businesses need to know about the Finance Act 2026 changes now in effect.

In this guide

What are gifts in kind?

"Gifts in kind" refers to donations of physical goods or services rather than cash. For businesses, this typically includes:

  • Surplus stock or inventory
  • Office equipment and furniture
  • IT equipment (computers, printers, etc.)
  • Building materials and supplies
  • Professional services provided for free
  • New items purchased specifically to donate

Current tax treatment

Under rules before 1 April 2026, when a UK business donates goods to charity:

Rules before 1 April 2026

  • • Corporation tax relief on the cost of goods donated
  • • VAT must be accounted for on market value (a deemed supply)
  • • Effectively, you "lose" the VAT you reclaimed when you bought the goods

This has historically made cash donations simpler, as donating goods meant paying HMRC the VAT on items you're giving away for free.

Finance Act 2026: what's changed

Finance Act 2026 introduced significant changes that make gifts in kind far more attractive:

Rules from 1 April 2026

  • • No VAT payable on qualifying donations to charity
  • • You keep the VAT you reclaimed when purchasing
  • • Corporation tax treatment depends on the expense, stock or asset rules
  • • Value caps: £200 ex. VAT for specified categories, £100 ex. VAT for other eligible goods

The 1.6x multiplier

Illustration assuming full recovery of 20% purchase VAT, a deductible expense at 25% corporation tax and a qualifying donation:

Buy item for £100 (inc. VAT)

Reclaim VAT: +£16.67

Corporation tax relief (25% of £83.33): +£20.83

Total tax benefit: £37.50

Net cost to you: £62.50

Value to charity: £100

Compare this to cash donations where £100 given = £100 received, with only corporation tax relief reducing your net cost to around £75.

VAT treatment explained

The VAT position depends on what you're donating and when:

Second-hand goods

If you're donating used equipment or items you've had for some time, the VAT treatment is simpler. HMRC generally accepts that second-hand items have negligible market value, meaning minimal or no VAT is due.

New goods (Finance Act 2026)

Finance Act 2026 changes specifically benefit new goods purchased for donation. The charity must provide a "Certification of Use" confirming the goods will be used for charitable purposes.

Which charities qualify?

To benefit from the new rules, donations must go to organisations that hold an HMRC charity reference:

  • Registered charities that hold an HMRC charity reference (a Charity Commission number alone is not sufficient)
  • Academy schools and Free Schools (once they hold an HMRC charity reference)
  • Voluntary Aided and Voluntary Controlled schools (with an HMRC charity reference)
  • PTAs that hold an HMRC charity reference
  • NHS charities

Does not qualify

  • • Community schools (council-maintained, not charities)
  • • Most private schools (unless they hold an HMRC charity reference)
  • • PTAs without an HMRC charity reference

Documentation you need

HMRC requires proper documentation to support your tax claims:

  • HMRC charity reference (a school URN or Charity Commission number alone is not sufficient)
  • Description of goods donated
  • Purchase receipts showing original cost
  • Date of donation
  • Certification of Use (for new goods under Finance Act 2026)
  • Acknowledgement from the charity

How CommuniTie helps

CommuniTie automates the entire gifts in kind process:

Find recipients

Every school and charity is checked before its wishlist goes live.

Track donations

All donations logged with dates, values, and charity details

Generate documentation

HMRC-ready donation certificates and tax reports

Export for accountants

CSV exports with all required fields for year-end

Bryn Powell

Written by

Bryn Powell

Co-founder, CommuniTie · Trustee and General Manager, Miricyl

Finance Act 2026: donating to charities
Legislation3 May 202610 min read

Finance Act 2026: what UK businesses need to know about donating to charities

Bryn Powell

Bryn Powell

Co-founder, CommuniTie · Trustee and General Manager, Miricyl

The Finance Act 2026, which received Royal Assent in March 2026, fundamentally changes how UK businesses can donate to charities. For the first time, businesses can donate physical goods and keep the VAT they already reclaimed. Here's what you need to know.

Key changes (Finance Act 2026)

  • No deemed supply on qualifying gifts: Eligible goods, recipients and uses can qualify for relief from output VAT
  • Keep VAT properly recovered: Qualifying gifts avoid an output VAT charge; purchase recovery follows separate rules.
  • Value caps introduced: £200 for essential goods, £100 for standard items
  • Certification of Use required: Charities must confirm goods used for charitable purposes

In this guide

Background: Why this matters

Before April 2026, donating goods to charity was financially punishing for businesses. The "deemed supply" rules meant that when you gave goods away, HMRC could require output VAT on the gift where purchase VAT had been recovered. The valuation rules and existing reliefs mattered.

This created a perverse incentive: it was more tax-efficient to throw goods away than donate them. Surplus stock went to landfill. Schools went without. The tax system actively discouraged generosity.

The Finance Act 2026 fixes this. For qualifying donations to registered charities, deemed supply rules no longer apply. The policy goal is simple: make it easier for businesses to support their local communities.

What actually changed

The old position (pre-april 2026)

  • 1.Business buys goods, reclaims VAT
  • 2.Business donates goods to charity
  • 3.HMRC treats this as "deemed supply" at market value
  • 4.Business owes VAT on that market value
  • 5.Net result: VAT benefit cancelled out

The new position (from april 2026)

  • 1.Business buys goods, reclaims VAT
  • 2.Business donates goods to qualifying charity
  • 3.No deemed supply - donation outside scope of VAT
  • 4.Business keeps VAT already reclaimed
  • 5.Business also claims corporation tax relief on donation

The maths: Your new 1.6x multiplier

Illustration assuming a purchase including 20% VAT, full VAT recovery, a deductible expense at 25% corporation tax and a qualifying donation. These assumptions are separate from the 2026 relief on the gift itself.

Example: Buying a £200 laptop for a local school

You pay:£200.00 (inc. VAT)
VAT reclaimed (20% of £166.67):-£33.33
Cost after VAT:£166.67
Corporation tax relief (25% of £166.67):-£41.67
Your net cost:£125.00
Value school receives:£200.00

The 1.6x multiplier

£125 spent delivers £200 of value. That's a 1.6x multiplier on your community impact. For every pound your business invests, the school or charity receives £1.60 worth of goods.

Compare this to cash donations, where £100 donated costs you £75 net (after corp tax relief). Same £100 to charity, but £12.50 more out of your pocket. Physical goods are now the most tax-efficient way to support local causes.

Who qualifies as a recipient

Not every organisation qualifies. The recipient must have charitable status recognised by HMRC:

Qualifying recipients

Schools

  • • Academy schools (once they hold an HMRC charity reference)
  • • Free Schools (once they hold an HMRC charity reference)
  • • Voluntary Aided schools (with an HMRC charity reference)
  • • Voluntary Controlled schools (with an HMRC charity reference)
  • • Multi-Academy Trusts (with an HMRC charity reference)

Other Charities

  • • Hold an HMRC charity reference (Charity Commission registration alone is not sufficient)
  • • PTAs that hold an HMRC charity reference
  • • NHS charities
  • • Museums and galleries
  • • Housing associations (charitable)

Non-qualifying recipients

These do NOT qualify for VAT relief

  • • Community schools - maintained by Local Authority, not charities
  • • CICs - Community Interest Companies are not charities
  • • CASCs - Community Amateur Sports Clubs have separate rules
  • • PTAs without an HMRC charity reference
  • • Most private schools - check for an HMRC charity reference

If you're unsure whether a recipient qualifies, ask for their HMRC charity reference. Academy schools are "exempt charities" under the Academies Act 2010, but they must hold an HMRC charity reference: a school URN alone is not sufficient for VAT relief purposes.

Understanding the value caps

Finance Act 2026 introduces per-item value caps. These caps are expressed exclusive of VAT:

£200

ex-VAT (£240 inc VAT)

Specified higher-limit goods

  • • Computers, laptops, tablets
  • • Household appliances
  • • Mobile phones
  • • Flooring, including carpets and rugs
  • • Furniture, including mattresses

£100

ex-VAT (£120 inc VAT)

Standard goods

  • • General office supplies
  • • Other eligible goods
  • • Consumables and stationery
  • • Books and materials
  • • General equipment

Above the caps?

Items over these limits don't qualify for this relief. HMRC generally treats an item as the thing an individual would buy in a retail setting. Check the appropriate unit and value for bulk donations with your accountant.

Documentation HMRC requires

To claim VAT relief under the new rules, you need proper records. HMRC may request these during a VAT inspection:

Required documentation

  • Original purchase invoice

    Showing VAT paid and item description

  • HMRC charity reference

    A school URN or Charity Commission number alone is not sufficient — an HMRC charity reference is required

  • Description of goods donated

    Quantity, description, and condition

  • Date of donation

    When goods were transferred

  • Certification of Use

    Charity confirms goods used for charitable purposes

  • Acknowledgement from recipient

    Written confirmation of receipt

Keep these records for at least 6 years. If you're using a platform like CommuniTie, this documentation is generated automatically when the recipient confirms delivery.

Timeline and effective dates

October 2025

Finance Bill 2025-26 introduced to Parliament

March 2026

Royal Assent - becomes Finance Act 2026

1 April 2026

New VAT rules take effect

Donations from this date qualify for VAT relief

April 2027

First full tax year under new rules

What your business should do now

1

Review your surplus stock

Items heading for disposal or storage could go to local schools instead. Old office equipment, surplus inventory, returned goods - all now tax-efficient to donate.

2

Brief your finance team

Make sure your accountant knows about the new rules. They may want to update your VAT treatment for charitable donations.

3

Consider budget reallocation

Some businesses are moving marketing budget to community giving. The 1.6x multiplier makes physical donations more impactful than equivalent cash spend.

4

Find local recipients

Connect with schools and charities who need what you can offer. Platforms like CommuniTie match businesses with verified recipients and handle the documentation.

Check recipient status first

Before donating, verify the recipient holds an HMRC charity reference. Being an Academy, Free School, or VA/VC school type alone is not sufficient: the school must also hold an HMRC charity reference. Equally, being registered with the Charity Commission, OSCR, or CCNI alone is not sufficient: charities must also hold an HMRC charity reference. Community schools (council-maintained) do not qualify.

Related reading

Bryn Powell

Written by

Bryn Powell

Co-founder, CommuniTie · Trustee and General Manager, Miricyl

Put the new rules to work

Every school and charity is checked before its wishlist goes live. Browse what they need, fulfill a wishlist, and we generate your HMRC documentation automatically.

VAT and charity donations
VAT & Tax3 April 20267 min read

Can I claim VAT back on charity donations? UK business guide

The short answer: yes, but only for physical goods under the right conditions. Under Finance Act 2026, VAT-registered businesses can donate goods to charity and keep the VAT they already reclaimed. Here's exactly how it works.

Quick answer

  • Physical goods donated to charity: Qualifying donations can avoid a VAT charge on the gift. Purchase VAT recovery follows separate business rules.
  • Cash donations to charity: No VAT to reclaim (outside the scope of VAT)
  • Second-hand goods: Yes, minimal or no VAT liability on donation

In this guide

How VAT on donations works

When a VAT-registered business buys goods, it reclaims the VAT. The question is: what happens to that VAT when you give those goods away to charity instead of selling them?

Normally, giving away goods for free is treated as a "deemed supply" - HMRC considers it equivalent to a sale, and you owe VAT on the market value. This meant businesses effectively had to pay back the VAT they'd reclaimed, making donations financially punitive.

Finance Act 2026 changes this. For qualifying donations to registered charities, the deemed supply rules no longer apply. You keep the VAT you reclaimed.

Before april 2026 (old rules)

Pre-April 2026 Position

When you donated goods to charity:

  • • You reclaimed VAT when you bought the goods
  • • Donating them was a "deemed supply" at market value
  • • You owed HMRC VAT on that market value
  • • Net effect: the VAT benefit was wiped out

This created a perverse situation where it was more tax-efficient to throw goods away than donate them - at least with disposal, there was no deemed supply.

From april 2026 (new rules)

Finance Act 2026 Position

For qualifying charity donations:

  • • No deemed supply - the donation is outside the scope of VAT
  • • You keep the VAT you reclaimed when purchasing
  • • Corporation tax treatment depends on the expense, stock or asset rules
  • • Any saving depends on the actual purchase VAT and applicable tax treatment

The charity must provide a "Certification of Use" confirming the goods will be used for charitable purposes. This is your evidence for HMRC.

The maths: 62.5p becomes £1

Illustration assuming full recovery of 20% purchase VAT, a deductible expense at 25% corporation tax and a qualifying donation:

You buy a £100 item (inc. VAT) to donate:

Purchase price: £100.00

VAT reclaimed (20% of £83.33): -£16.67

Corp tax relief (25% of £83.33): -£20.83

Your net cost: £62.50

Value received by charity: £100.00

Compare to cash donation

If you donate £100 cash, you get corp tax relief (£25 back), so it costs you £75 net. Same £100 to charity, but £12.50 more out of your pocket.

This example gives a 1.6x ratio between purchase value and after-tax cost. It is not a guaranteed saving for every business or donation.

Which donations qualify?

Recipient must hold an HMRC charity reference

  • Charities that hold an HMRC charity reference (Charity Commission registration alone is not sufficient)
  • Academy schools and Free Schools (once they hold an HMRC charity reference)
  • Voluntary Aided and Voluntary Controlled schools (with an HMRC charity reference)
  • PTAs that hold an HMRC charity reference
  • NHS charities
  • Museums and galleries that hold an HMRC charity reference

Does not qualify for VAT relief

  • • Community schools (council-maintained, not charities)
  • • CICs (Community Interest Companies)
  • • PTAs without an HMRC charity reference
  • • Private schools without an HMRC charity reference

Types of goods that qualify

  • New goods purchased specifically to donate
  • Surplus stock and inventory
  • Office equipment and furniture
  • IT equipment (computers, tablets, printers)
  • Building materials and supplies
  • Educational resources and books

Value caps you need to know

Finance Act 2026 introduces per-item value caps for the relief from a VAT charge on donation:

£200

Specified higher-limit goods

Household appliances, furniture, flooring, computers (including tablets) and mobile phones

£100

Standard goods

General supplies, non-essential equipment, consumables

Items over these limits don't qualify for this relief: up to £200 excluding VAT (£240 including VAT) for the listed essentials, and up to £100 excluding VAT (£120 including VAT) for everything else.

Documentation requirements

HMRC requires proper documentation. Keep these records:

  • HMRC charity reference (a school URN or Charity Commission number alone is not sufficient)
  • Description and quantity of goods donated
  • Original purchase receipts (showing VAT paid)
  • Date of donation
  • Certification of Use from the charity
  • Written acknowledgement from the recipient

Common questions

Can I reclaim VAT on cash donations?

No. Cash donations are outside the scope of VAT entirely - there's no VAT to reclaim. You can only get corporation tax relief on cash donations.

What about second-hand goods I've used in my business?

Good news: second-hand goods typically have negligible market value for VAT purposes. The deemed supply rules still technically apply, but the VAT liability is minimal or nil. You still get corporation tax relief on the original cost.

Do I need to register for anything?

You must be VAT-registered to reclaim VAT. There's no separate registration for charity donations - just ensure you have proper documentation.

What if I'm on the Flat Rate Scheme?

Flat Rate Scheme businesses can't reclaim VAT on purchases in the normal way. The Finance Act 2026 changes primarily benefit businesses on standard VAT accounting.

Can I donate to schools abroad?

The Finance Act 2026 rules apply to UK-registered charities. International donations have different and more complex VAT treatment.

Related reading

Bryn Powell

Written by

Bryn Powell

Co-founder, CommuniTie · Trustee and General Manager, Miricyl

Start donating with confidence

Every school and charity is checked before its wishlist goes live. We generate the documentation you need for HMRC automatically.

VAT for charities
VAT & Tax14 April 202610 min read

How VAT affects charities: HMRC notice 701/1 explained

HMRC's Notice 701/1 is the definitive guide to how VAT works for charities. This article breaks down the key rules in plain English, so trustees, finance managers, and school business managers can understand what they can buy VAT-free and how to claim relief.

Official source: This article summarises HMRC Notice 701/1 "How VAT affects charities"

Read the full HMRC guidance

In this guide

Who qualifies as a charity for VAT purposes

To claim VAT reliefs, your organisation must meet all these criteria:

  • Based in the UK
  • Established for charitable purposes only
  • Registered with the Charity Commission (or equivalent regulator)
  • Run by "fit and proper persons"
  • Recognised by HMRC

When claiming VAT relief, you may need to quote your HMRC recognition reference as proof of charitable status. Suppliers can ask for this before applying zero-rating.

What charities can buy VAT-free

Certain goods and services supplied to charities are "zero-rated" - meaning 0% VAT. The charity pays no VAT, and the supplier charges no VAT.

Advertising and fundraising materials

  • All advertising services (TV, radio, print, digital)
  • Pre-printed collecting boxes and envelopes
  • Appeal letters
  • Low-cost lapel stickers, badges, and emblems for acknowledging donations

Medical and disability equipment

  • Aids for disabled people (for personal or domestic use)
  • Talking books for the blind and disabled
  • Wireless sets for the blind
  • Medical and scientific equipment (for eligible bodies)
  • Resuscitation training models for first-aid training

Rescue and emergency equipment

  • Specialist communication equipment
  • Light-enhancing and heat-detecting equipment
  • Lifeboats, slipways, and launching equipment
  • Sea rescue equipment (and repairs)

Construction

  • New buildings intended solely for non-business charitable use
  • Village halls
  • Adaptations for disabled access (ramps, wider doorways, accessible washrooms)

VAT exemptions for charity activities

Some charity activities are exempt from VAT entirely. This means charities don't charge VAT on these services (but also can't reclaim VAT on related costs).

Exempt activities include:

  • • Welfare services - care for the elderly, sick, distressed, or disabled; childcare; spiritual welfare
  • • Fundraising events - admission fees and income (with limits)
  • • Building hire - letting out premises (normally exempt)
  • • Sports facilities - membership and admission by non-profit bodies

Fundraising events and VAT

Income from fundraising events is exempt from VAT, but there are important limits:

The 15-event rule

You can hold up to 15 events of the same kind at the same location per financial year with VAT exemption. Beyond that, VAT may apply.

The event must be organised primarily to raise money for the charity's purposes. This covers:

  • Admission fees to charity events
  • Sale of donated goods at the event
  • Programme sales
  • Raffle ticket sales

VAT on donated goods

When charities sell, hire out, or export goods that have been donated to them, this is zero-rated. This applies when the goods are:

  • Made available to the general public
  • Made available to disabled people
  • Made available to people on means-tested benefits

This is why charity shops can sell donated items without charging VAT.

Reduced rate fuel and power

Charities can pay the reduced rate (5%) on gas and electricity when used for:

  • Dwellings and residential accommodation (care homes, hospices, children's homes)
  • Charitable non-business activities

Small quantity deliveries (e.g., 1,000 kWh or less of electricity per month) automatically qualify for the reduced rate.

New relief for business donations (Finance Act 2026)

Finance Act 2026 introduced a new relief allowing VAT-registered businesses to donate goods to charities without paying VAT on the "deemed supply".

What this means for charities

Businesses can now donate goods valued up to £200 ex. VAT (essential items) or £100 ex. VAT (standard items) without losing the VAT they reclaimed on purchase. This makes it significantly more attractive for businesses to donate physical goods.

To receive goods under this relief, charities must provide a Certification of Use confirming the goods will be used for charitable purposes.

Excluded from the relief

  • • Alcohol, tobacco, and vaping products
  • • Items subject to excise duty

Can charities reclaim VAT?

This is where it gets complicated. Charities can only reclaim VAT on purchases related to their taxable activities. HMRC uses a three-stage test:

Stage 1: Non-business activities

VAT on purchases directly relating to non-business (charitable) activities cannot be reclaimed.

Stage 2: Taxable sales

VAT on purchases relating to standard or reduced-rate taxable sales can be fully reclaimed.

Stage 3: Exempt activities

VAT on exempt activities normally cannot be reclaimed, unless you're below the de minimis threshold.

Many charities carry out a mix of taxable, exempt, and non-business activities. This means they can only reclaim a proportion of their VAT. The calculations can be complex - consult VAT Notice 706 or speak to an accountant.

Eligibility declarations

To claim VAT relief on purchases, charities must:

  • Complete an eligibility declaration for each type of relief
  • Provide evidence of charitable status to suppliers
  • Keep records demonstrating entitlement to relief

Suppliers are responsible for checking conditions are met before applying zero-rating. They should keep copies of declarations with their records.

Key takeaways

  • 1Charities can buy many items VAT-free - especially advertising, medical equipment, and construction for charitable use.
  • 2Fundraising events are generally VAT-exempt, but watch the 15-event limit.
  • 3Under Finance Act 2026, businesses can donate goods to charities more tax-efficiently than ever.
  • 4Charities can only reclaim VAT on their taxable activities - most charitable work doesn't qualify.
  • 5Keep proper records and eligibility declarations - HMRC can ask for them.

Related reading

Bryn Powell

Written by

Bryn Powell

Co-founder, CommuniTie · Trustee and General Manager, Miricyl

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