Charity Finance Group has joined with charities, trade organisations and business to urge the Chancellor to unlock vital support for families who are impacted by the rising cost-of-living.
The group has written to the Chancellor asking to provide VAT relief on goods donated to charities, where these goods will later be provided free of charge to people in need, such as at food banks or emergency relief. This would bring the rules into line with existing reliefs, which provides VAT relief for donated goods that charities would sell on, such as through their charity shops.
The current VAT relief supports the donation of millions of products each year to charities and volunteer organisations, which are often sold on. But the regulations require businesses to pay VAT when donating goods to directly support people in need, which is holding back the full potential of excess inventory from being donated at scale.
Without these changes, it would be more cost-efficient for retailers to store or – in the worst cases - destroy items, than it would be for them to donate them.
Writing to the Chancellor ahead of the Spring Budget on 15 March, CFG joined with 18 other organisations, including the British Heart Foundation, Charity Retail Association, the British Retail Consortium and Amazon, to ask for these changes to be made to allow businesses to increase the amount of inventory they donate.
The letter notes that: “Making this change to the VAT rules will remove any incentive within the tax system to dispose of rather than donate usable products, with knock on benefits for the environment and the Government’s ambitions to move towards a circular economy."
Robust safeguards against the potential for abuse can be implemented by applying the same restrictions as the current VAT relief, which would limit its application to donations made to charities recognised by HMRC for tax purposes.
Richard Bray, Chair of the Charity Tax Group, said: “This is a simple and practical measure that has the potential to deliver huge benefits to those struggling with the cost-of-living crisis in the country, as well as reducing waste. We urge the Chancellor to introduce it without delay.”
Helen Dickinson OBE, CEO of the BRC, added: “Businesses and charities stand ready to work together to increase the volume of direct donations and establish new schemes to help smaller charities access more everyday essentials they can pass on to those struggling to make ends meet.
"This difference in treatment for goods for onward sale compared to those being donated directly to those in need must surely be an anomaly rather than a purposeful policy. With this reform, the Chancellor can help deliver a increase support for those who need it most at a time when many are suffering from the cost-of-living crisis.”
Download the joint letter on VAT relief. For further information, visit the British Retail Consortium's website.
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