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HMRC internal manual

VAT Charities

From
HM Revenue & Customs
Updated
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Charity shops and sales of goods: Sale of donated goods

The sale of donated goods by a charity or a “profits to charity” person (normally a charity’s trading subsidiary) is zero-rated.

The relief applies exclusively to goods and does not include items which may be deemed to be goods in other sections of law. For example, the relief does not apply to any land or buildings donated to and sold by a charity.

The goods can be new or second-hand, but must have been donated to the charity.

Must the goods be sold on in the condition they are received?

The goods can be cleaned or repaired as long as this does not alter their structure or original use.

Garments can be washed and pressed, buttons sewn back etc. This will make garments more presentable and achieve a higher sale price. Some larger charities have a central unit where all donations are taken to be prepared for sale. Any expenses incurred in this unit are directly attributable to taxable supplies made in the shops and input tax can be recovered in full.

If the donated item is altered it will cease to qualify for relief, as demonstrated in the following examples:

  • A transport company donates wooden pallets to a charity which runs a day-centre for disabled adults. The disabled adults use the wood to make rabbit hutches and hen coops which are sold to raise funds for the day-centre. These sales are liable to VAT at the standard rate as the goods are not being sold on in the same state that they were donated.
  • An artist donates an original painting to a charity. The charity has a number of prints made rather than sell the original painting. The prints have not been donated so will not qualify for zero-rating.

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Must the donated goods be held out for sale immediately?

Not necessarily. It is what the charity does with the goods before offering them for sale that affects the liability. If the goods are cleaned or repaired, as described above, the sale will still be zero-rated.

If the goods are let on hire for a period before being sold then the eventual sale will still qualify for zero-rating.

However, if the donated goods are used by the charity for any period before being held out for sale they will be liable to tax at the standard rate. For example, an established charity was given paintings by now famous artists which have hung in their offices for many years. The charity decides to sell the paintings to raise funds. Such a sale would be standard-rated (although you should check whether the sale will be covered by the margin scheme for works of art, antiques and collectors’ items) - see Notice 718 (HMRC website).