Surplus stock donations to charities to become VAT-free

From 1 April 2026, a long‑standing VAT barrier is being removed, making it easier for businesses to donate surplus stock to charity without triggering an unexpected VAT charge.

HMRC has confirmed that no VAT will be due when eligible goods are donated free of charge to registered charities, where those goods are used to support people in need or to deliver charitable services. This marks a significant and welcome change to the current VAT treatment of donated goods.

What’s changing?

Under the new rules, businesses will no longer be required to account for VAT when donating qualifying goods to registered charities for:

• Onward distribution to people in need, or
• Direct use in delivering charitable services

This represents a substantial shift from the existing position, where VAT relief has largely been limited to goods donated for resale by charities. As a result, many businesses have historically faced a VAT cost when donating surplus stock that could not be resold - often leading to perfectly usable items being written off, destroyed or wasted.

The impact

The change removes a key financial disincentive that has previously discouraged charitable donations of surplus goods. From April 2026, businesses will be better placed to:

• Reduce waste and disposal costs
• Support charities and local communities more effectively
• Strengthen sustainability and ESG credentials
• Avoid irrecoverable VAT charges on donated stock

For many organisations - particularly in retail, manufacturing, food production, pharmaceuticals, and consumer goods - this relief could significantly change how surplus or obsolete stock is managed.

Who can benefit from the new relief?

The relief may be particularly relevant for businesses that:

• Regularly hold surplus, seasonal, discontinued or short dated stock
• Currently destroy or write off usable goods due to VAT concerns
• Are looking to improve sustainability practices or reduce waste
• Already work with, or are considering working with, registered charities

Charities will also benefit, as the change is expected to increase the volume and range of goods available to support vulnerable individuals and communities.

Key considerations

While the relief is welcome, it is important to note that conditions will apply. Businesses will need to ensure that:

• The recipient is a registered charity
• The goods qualify under the new rules
• Appropriate records and documentation are maintained
• Donations are structured correctly to avoid unintended VAT consequences

Incorrect application of the relief could still lead to VAT exposure, penalties or HMRC challenge.

How businesses should prepare now

Although the relief does not take effect until 1 April 2026, businesses should begin preparing early by:

• Reviewing current surplus stock processes
• Identifying where VAT has previously prevented charitable donations
• Assessing systems and controls needed to support compliant donations
• Taking advice to ensure donations are structured correctly from day one

Early planning will help businesses maximise the benefit of the relief while remaining fully compliant.

We’re here to help

If your business donates - or could donate - surplus stock, now is the time to act.

Preparing ahead of April can help you reduce waste, support charitable causes and avoid unnecessary VAT costs.

Our VAT specialists can help you understand how the new relief applies to your business and support you with:

• Assessing eligibility for the relief
• Reviewing surplus stock and donation processes
• Advising on VAT compliance and record keeping
• Implementing practical, tax efficient solutions

Contact our team today to discuss what this new VAT relief means for your business and how to prepare.