VAT on business donations of goods to charity
The government has confirmed that a new VAT relief for business donations of goods to charity will take effect from 1 April 2026. Designed to reduce waste and support the circular economy, the measure removes VAT on goods donated to registered charities for onward distribution or use in delivering services.
The relief will apply to goods valued up to £100 per item, with a higher £200 threshold for essential electrical items – such as laptops and white goods – to help tackle digital poverty. Eligibility is strictly limited to registered charities, meaning community interest companies (CICs) and social enterprises are excluded unless they register as charities.
ICAEW’s view
Ed Saltmarsh, ICAEW Technical Manager, VAT and Customs, welcomed the relief: “The existing VAT treatment creates a perverse incentive: businesses face no VAT liability when disposing of goods to landfill, but may incur one when donating those same goods to charity. The change being introduced removes this incentive while striking a sensible balance between simplicity and countering fraud.”
Further information
- Consultation on the VAT treatment of business donations of goods to charity - GOV.UK
- ICAEW supports new VAT relief for donated goods | ICAEW
VAT on private hire vehicles
Suppliers of private hire vehicle (PHV) and taxi services will be excluded from the scope of the Tour Operators’ Margin Scheme (TOMS) from 2 January 2026, except where the services are supplied in conjunction with certain other travel services. This change in the legislation follows the Upper Tribunal ruling of 24 March 2025 (HMRC v Bolt Services UK Limited [2025] UKUT 00100 (TCC)) and confirms that VAT-registered operators contracting as principals must account for VAT at the standard rate of 20% on the full passenger fare. The government has rejected proposals for a reduced VAT rate or a bespoke margin scheme, stating that applying the standard rate is necessary to secure approximately £700 million in annual revenue for public services.
In regards to the regulatory framework, the government confirmed it will not amend VAT legislation to permit operators acting as principals to account for VAT as agents. A distinction therefore remains in operation: while the 2021 High Court judgment mandates that London-based operators contract as principals, the Supreme Court judgment of July 2025 (D.E.L.T.A. Merseyside Limited and Anor v Uber Britannia Ltd [2025] UKSC 31) confirmed that operators in the rest of England are not subject to this requirement and may continue to act as agents. Consequently, the government will not amend transport legislation to mandate a single-tier system across England, which leaves the liability model split between the capital and the regions.
Further information
- Consultation on the VAT Treatment of Private Hire Vehicles - GOV.UK
- A lightning bolt for the VAT Tour Operators Margin Scheme | ICAEW
VAT on motability
The government is reforming the tax treatment of the Motability Scheme to focus support on its core objectives, a measure expected to save over £1 billion over the next five years.
From July 2026, VAT relief on top-up payments for more expensive vehicles will be removed, and the standard rate of Insurance Premium Tax will apply to scheme insurance contracts. Crucially, VAT relief will remain on weekly lease costs and vehicle resale, and the new tax charges will not apply to vehicles designed or substantially adapted for wheelchair or stretcher users.
Further information
E-invoicing
The government will require all VAT invoices to be issued in a specified electronic format from April 2029. An implementation roadmap will be published at Budget 2026 further to consultation with stakeholders.
Further information
VAT grouping
The government will clarify the rules relating to operating cross border VAT grouping from 26 November 2025 by reverting to the UK’s previous position.
This measure effectively reverses the impact of recent EU case law – particularly the case of Skandia – to restore the "whole establishment" principle. Practically, this means that services provided between a UK head office and its overseas branch will once again be disregarded for VAT purposes, even if the branch belongs to a VAT group in another jurisdiction.
HMRC has published a brief with more details on the changes.
Further information
VAT and deposit return schemes
The government has confirmed it will simplify VAT administration for the deposit return scheme (DRS) by shifting the liability for unreturned deposits from individual producers to the deposit management organisation. This change removes the requirement for producers to account for VAT on funds they do not hold and is being legislated for now ahead of the scheme’s planned launch in October 2027.
ICAEW’s view
Ed Saltmarsh, ICAEW Technical Manager, VAT and Customs welcomed the move: “The decision reflects the concerns raised for by ICAEW in representation 42/23, in which we warned that holding producers liable would create unfair absolute costs and administrative complexity. By transferring this responsibility to the scheme administrator – the party holding both the unredeemed deposits and the relevant data – the government appears to be implementing a pragmatic solution that protects businesses from unnecessary financial risk.”
Further information
VAT treatment of land intended for social housing
The government will shortly consult on the reform of VAT rules to incentivise the development of land intended for social housing.
Further information
ICAEW on the Budget
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