Unleashing Corporate Generosity Through VAT Reform

A victory for compassion and conservation 

November 26, 2025, marked a landmark moment for social justice, sustainability, and community resilience, as the UK Government confirmed the introduction of a critical new VAT relief for businesses donating surplus products to the charitable sector.

For years, we have championed this regulatory change because it hits the sweet spot: it alleviates suffering in our communities, respects valuable resources, and dramatically reduces our collective negative environmental impact. This is not just a tax change; it is a fundamental shift that removes a historical financial disincentive and transforms how businesses approach surplus management and social value creation.

The real need in our communities

The sources make it clear that the demand for charitable services is soaring while organisations struggle to meet basic needs. Data collected by Neighbourly from local causes across the UK and Ireland paint a stark picture:

1. Exploding Demand: Nearly four-fifths (79%) of organisations reported that the demand for their services has increased over the past six months. The cost-of-living crisis is expected to affect the people they support "very significantly" or "quite significantly" for 90% of organisations this winter.
2. Capacity Shortfall: Despite the urgent need, two-fifths (40%) of organisations confirmed they are currently unable to help people requesting support due to limitations in capacity or funding. Furthermore, 36% of organisations reported that their fundraising and income streams decreased overall over the past year.
3. Essential Needs: The dominant focus across the network is addressing basic needs, with food poverty, food banks, and community meals listed as the main focus area for 36% of responding organisations. Crucially, the demand extends far beyond food to essential non-food items. Local causes are urgently requesting personal and feminine hygiene products (including soap, shampoo, and menstrual products), cleaning and household supplies (like laundry detergent and toilet paper), and baby products (such as nappies and formula).

These gaps - in warm clothing, household goods, and hygiene essentials - are precisely where the VAT relief will deliver tangible social justice.

How the policy change delivers justice and sustainability

The previous legislation created an unjust paradox. When a business donated new or surplus goods for direct use by charity beneficiaries, the business was liable for the VAT on those qualifying items, which acted as a hidden 20% cost. This often made it economically more viable for businesses to send valuable stock directly to waste streams instead of to those in need.

The new regulation changes this. Businesses are no longer liable to pay VAT on the value of (qualifying) goods donated to eligible charities, provided those items are intended for free onward donation to beneficiaries. This aligns the treatment of goods intended for direct use (e.g., hygiene packs, furniture, clothing) with the long-standing relief already in place for goods donated for charity resale.

This policy change supports these primary drivers:

• Social Justice: It ensures that surplus items - from clothing and hygiene kits to DIY materials - are redirected to the vulnerable communities who need them most, rather than being destroyed due to a tax liability. Receiving support beyond the fundamentals, such furniture or refurbished tech, helps people access a greater quality of life.
• Respecting valuable resources & reducing environmental impact: By making donation the preferred financial option over disposal, the relief encourages product reuse and supports the circular economy. This not only reduces waste disposal costs for businesses but also achieves verifiable reductions in Scope 3 carbon emissions. For context, existing food donation programmes have already saved 438k tonnes of CO2e. This new relief allows us to scale those environmental benefits significantly.

Our partners in change

This landmark policy would not have been achieved without the collaborative engagement across all sectors. To our peers in the charitable and advocacy sectors, thank you for providing the strong operational evidence and data required to demonstrate that the VAT liability was a direct barrier to substantial corporate giving. Our work together, supported by the insight that 81% of organisations view business partnerships as overwhelmingly useful in service delivery, was instrumental in this success.

To our corporate partners and peers in the private sector, we recognise the leadership of key bodies like the Confederation of British Industry (CBI) and the British Retail Consortium (BRC) and Rt Hon Gordon Brown who led the multi-stakeholder group advocating for this crucial reform. This shows the profound social impact that businesses can achieve when prioritising responsible brand reputation and ESG commitments.

Finally, we extend thanks to the UK Government for listening to the evidence and confirming this critical new VAT relief. This regulatory shift is a powerful example of how public policy can unlock private sector capacity to address systemic social issues.

The removal of the VAT barrier converts a previous tax liability into a zero-cost social investment. Now, the flow of valuable items to the people and places that benefit most will rapidly increase, strengthening communities and creating a fairer future for everyone.