The Treasury has announced that a new VAT relief to encourage businesses to donate everyday items to charity will be consulted on in the coming weeks.
Tax minister Nigel Huddlestone announced plans today for the 12-week consultation to be launched before 23 July this year.
Currently, firms do not pay VAT on any goods they donate which are then sold on, such as clothes, hygiene supplies and cleaning products.
However, they are charged VAT if these goods are distributed free of charge to those in need.
This has led to a growing barrier to businesses donating goods to charities for distribution to people in need as firms have had to account for VAT on donations which are not for onward sale, the Treasury said.
The Treasury will consult on introducing a new UK-wide VAT relief for donations of low value household goods such as hygiene items (soap, toothpaste, toothbrushes, shower gel, toilet rolls), second hand items from hotels (such as sheets, kettles) and cleaning supplies – including laundry detergent.
Huddleston said: “We want the tax system to support donations to charity, not work against it.
“We are consulting on how a VAT relief might boost donations so we can get more items we all rely on everyday to those in need and help to alleviate poverty.”
CTG: Hoped for new relief without consultation
Richard Bray, Charity Tax Group (CTG) chair, said: “We are pleased that the government has listened to the representations made by CTG and others and announced that it will hold a consultation later this year on the introduction of this relief.
“We had hoped that the measure could have been introduced without a consultation being necessary as a measure such as this would be highly effective in increasing the help available for people who are in the greatest need.”
Meanwhile, British Retail Council CEO Helen Dickinson said: “We hope that the consultation will result in a meaningful change that will boost the charitable work of business in this country.”
Andy Scott, principal tax adviser of the Confederation of British Industry, said: “By removing the VAT penalty on donated goods, businesses will be more encouraged to support the growth of the civil society sector and the circular economy.”
The Treasury said the conclusion to the consultation will be announced at a future fiscal event.
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