HM Revenue & Customs: VAT implications of Giving to Charity by Businesses

The following is a very brief overview of the types of charitable giving in which your business might be involved. The VAT treatment of donations to charities depends on the specific nature of the transactions and can be complex. If you are considering donating to charity you are advised to consult the HMRC Charities helpline on 08453 02 02 03 for guidance.

Donating money to a charity

Donations that are freely given and for which your business, as the donor, receives nothing in return are outside the scope of VAT. However, if your business receives benefits from the charity in return for making the payment, the charity (if VAT registered) will be required to account for VAT on the payment. VAT may not be fully recoverable by your business if the expense is not incurred for business purposes or is an exempt activity. If in doubt you should consult the HMRC Charities helpline on 0845 02 02 03 (option 4) before proceeding.

Donating goods or equipment to a charity

Because the goods are being donated rather than sold, your business, as the donor, will not be entitled to recover the VAT incurred on the purchase of those goods. Alternatively you can choose to treat the donation as a “sale” for VAT purposes. This means you will have to account for VAT on the value of the goods but will be entitled to recover the VAT incurred on their purchase, subject to the normal rules of VAT.

If, however, the goods are donated to a charity for sale, export or letting by the charity (for example goods donated for sale in a charity shop) your business, as the donor, can zero rate the ”sale” and recover the VAT on the purchase of the goods, subject to the normal rules.

If your business is considering donating goods or equipment to a charity you are advised to consult HMRC Charities helpline on 0845 02 02 03 (option 4) before proceeding.

Donating shares or land to a charity

Although the assets of your business are donated rather than sold, the donation may have to be treated as a “sale” for VAT purposes. If your business is considering this course of action, you should consult the HMRC Charities helpline on 0845 02 02 03 (option 4) before proceeding.

Sponsoring a charity

If you receive any benefits in return for your sponsorship the charity (if VAT registered) is making a taxable supply to you and must account for VAT. You will be able to reclaim the VAT, in full, only if the sponsorship is for business purposes and your business is fully taxable (ie. you make standard rate, reduced rate or zero rate supplies). If your business makes exempt supplies, you may have to restrict the amount of VAT you recover in accordance with the normal rules of VAT.

Sponsorship is outside the scope of VAT only if the sponsor receives no benefits, other than a minor acknowledgment, in return.

If you provide sponsorship to a charity in the form of goods or services, rather than in money, you may be liable to account for VAT on those supplies depending on the circumstances. Guidance on providing sponsorship is contained in paragraph 2.4 of Notice 701/41 Sponsorship. If in any doubt you should consult the HMRC Charities helpline on 0845 02 02 03 (option 4) before proceeding.