Charity boost from tax change
A long-standing tax levied on businesses donating to charities has now been removed, a leading accountancy and advisory firm has said.
Azets wants to remind businesses that they can now give goods to registered charities without paying VAT.
The news comes at a time of falling charity donations; the Charities Aid Foundation (Caf) recently revealed that public donations to good causes plummeted by more than £1.4bn last year.
Millions of people said they can no longer afford to donate and just half of people gave to charity last year, down from 61% a decade earlier.
Until the recent change, if a VAT-registered business made a donation and had already claimed back the VAT it paid on those goods, the donation was normally treated as if the business had made a sale.
This meant the business usually had to pay VAT to HMRC based on the value of the goods it donated.
Siobhan Holmes, an Azets partner who specialises in not-for-profit accounting, said: “This is excellent news for charities, which we know are receiving less in donations.
“Essentially, HMRC has confirmed that for VAT-registered companies, 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 are to deliver charitable services.
“The changes remove the VAT that previously applied because the business had reclaimed the amount when it originally bought the goods. However this relief does include a monetary cap per item, and charities cannot reclaim VAT on the donated goods.
“Many will be unaware that donations were liable for VAT, but there will also be companies who might have disposed of goods rather than donated them because of the tax they would have to pay.
“We want to get the message out to businesses that they can now donate to charities with falling foul of HMRC.
“Office supplies and equipment, or surplus stock, is often welcomed by charities and there will be other goods that will be of great use to them.
“For their part, charities should make a record of donated goods – especially any expensive items – and keep an audit trail.”
Azets has also warned charities and not-for-profit organisations to ensure all their procedures and records are watertight in the light of new and enhanced compliance activity.
HMRC has initiated a programme of Structured Risk Reviews (SRRs) across the charity and not-for-profit sectors, signalling a more intensive and data-driven approach to oversight.