The government is looking to introduce a new relief that would provide a VAT boost to charitable donations. The new VAT relief would be designed to encourage businesses to donate everyday items to charities without creating a VAT liability. A 12-week consultation on the proposed changes will be launched before 23 July 2024.

Under the current rules, firms do not pay VAT on any goods they donate which are then sold on, such as clothes, hygiene supplies and cleaning products. However, if these goods are not sold but are instead distributed free of charge to those in need VAT must be accounted for. 

The proposed relief would help encourage 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)
• cleaning supplies – including laundry detergent

The new VAT relief will not include goods which are donated to charities for the charity to use, such as new IT equipment, in order to prevent any possible VAT avoidance.

The result of the consultation and confirmation of any changes will be announced at a future fiscal event.

VAT retail schemes are a special set of schemes used by retail businesses to account for VAT. The schemes are used by businesses that sell a significant amount of low value and/or small quantity items to the public with different VAT liabilities.

The use of the schemes can save businesses a significant amount of time in calculating the amount of VAT due to HMRC on each sale. In many circumstances, it would be extremely difficult for these businesses to account for VAT using standard VAT accounting. By using the VAT retail scheme, retailers are able to calculate VAT due to HMRC at the standard, reduced and zero rates of VAT as a proportion of sales. Usually this is done on a day by day basis.

There are a number of standard VAT retail schemes:

• the point of sale scheme
• two apportionment schemes
• two direct calculation schemes

There is also the option of using a bespoke scheme. The use of a bespoke scheme is obligatory for retailers with a turnover excluding VAT of £130 million or more.

The decision as to which retail scheme to be used is usually driven by a combination of looking at the scheme that provides the best result for the business in question combined with the cost of using the scheme with the important caveat that HMRC are of the opinion that the chosen scheme is fair and reasonable.

There are special procedures for moving goods in and out of Northern Ireland. Under the Northern Ireland Protocol, all Northern Ireland businesses continue to have access to the whole UK market. 

There is specific guidance published by HMRC that should be followed for goods that are received into Northern Ireland from a supplier in the EU.

• If you are registered for VAT in the UK and receive goods in Northern Ireland from countries in the EU, you will normally account for the VAT through your VAT Return. You will need to account for the VAT at the same rate that you would have paid if you had bought them from a UK supplier. This VAT is known as acquisition VAT, and you can normally reclaim some or all of this if the acquisitions relate to VAT taxable supplies that you make.
• If you are not VAT registered and receive goods in Northern Ireland from countries in the EU, your supplier will charge VAT at the local rate in the EU country from which the goods are supplied. If you are not already registered for VAT in the UK and buy goods worth £90,000 (£85,000 prior to 1 April 2024) you may be required to register for VAT.

You may also be required to complete an Intrastat Supplementary Declaration if your acquisitions of goods from the EU exceed an annual amount. The delivery terms threshold for both arrivals and dispatches is currently £24 million.