As Autumn draws to a close, the much anticipated Autumn Budget 2025 arrived last week. What does this mean for charities and how will the Budget affect the sector? It is fair to say: on the whole, not a lot! 

VAT relief for business donations of goods

The headline change for charities is a change to VAT relief. From 1 April 2026 the Government will be clarifying its VAT Charity Tax Relief for businesses who donate goods to charities. 

Currently, the system for this relief is rather inconsistent. If, for example, a business donated clothing to a charity which then sold those items, the business would qualify for a VAT relief. However, if those items were instead given away for free to those in need (as many charities may wish to do), the donating business would not qualify for VAT relief, which doesn’t really incentivise businesses to donate generously. This will no longer the case: the relief will apply to business donations of goods generally which are used for “onward distribution or use in the delivery of […] services”.

For those charities who benefit from business donations of goods, this is welcome news. The proposition of donating to a trusted partner charity should be more enticing, as businesses will no longer be penalised where a charity distributes rather than sells goods. However, the changes are minimal – and do not provide further incentive for charitable giving or support from commercial entities outside of the existing drivers of brand recognition and corporate social responsibility. It is unlikely to result in a wave of businesses queueing up to donate.

While the introduction of reliefs are a rare sight in this Budget, there is an air of missed opportunity. What could have been a means to really encourage businesses to boost their charitable giving, instead feels more like window-dressing.

Hopefully though some charities within our incredibly diverse sector will be able to use the relief to attract more business support and charity business development managers and trustees alike may wish to consider which businesses, local or national, could be encouraged to make more of this opportunity.  

Office for the Impact Economy

The ‘Impact Economy’ refers to impact investors, philanthropists and purpose-driven businesses. The Government’s new Office for the Impact Economy serves to obtain input from interested parties in order to advance their social impact nationwide. This signals a positive change in attitude from the Government: a department dedicated to social impact is a clear sign of intent. Unfortunately, it is too early to say how this arm of government will truly impact the charity sector - it is certainly a long-term measure. 

As the Office is in its infancy, the Government is looking to run a co-design process with external stakeholders to shape what the Office will seek to achieve and this presents a prime opportunity for charities to get involved and express their views about the challenges the sector faces. From rising costs to surviving on reserves, it is a chance for the sector to speak up and (hopefully) impact government policy in the future. The optimistic view is that it signals the Government is looking to take the Impact Economy seriously, a positive indicator for changes to come, though how this may manifest itself remains to be seen. 

You can learn more about the Office for the Impact Economy here.

Rising employment costs

Changes to National Living Wage and National Minimum Wage are, from the perspective of the cost of living and the public generally, welcome. However, the charities sector is not immune from the unintended consequences of these changes. Already pressured charities may have a road paved with difficult decisions ahead of them. It is no secret that charities are just about managing: demand is increasing and the line between income and expenditure grows ever thinner. Throw into the mix a 4.1% increase to minimum wage and also the frozen National Insurance thresholds (as wages rise, more people will need to pay National Insurance and employers will have to contribute) this will no doubt result in more strain arising from staff costs, to charities scarcely making ends meet. 

Is there a silver lining? Charities supporting those most in need may in some instances see a change in demand as spending power increases (in theory at least) and more government-funded support is available (namely with the lifting of the Two Child Benefit cap) but as businesses generally pass on their increased costs to the public, whether it will make a great deal of difference to charities remains to be seen.  

Budget of missed opportunities

It was a somewhat disappointing Budget for the charities sector; even as more people are relying on the sector, it has seemingly been forgotten. Having just about weathered the storm over recent years, reduced donations from an increasingly pressured public has placed a great deal of strain on charities financially. Opportunities to unlock vital sources of funding, whether through the modernisation of gift aid or the greater encouragement of charitable giving by companies, are sadly absent. 

Whilst there are opportunities for some charities, arguably you would have to squint to see them. There is the VAT Charity Tax Relief which some charities may seek to push as a selling point to encourage businesses to donate of goods for onwards distribution - but how many businesses will be looking to do this when their own costs continue to rise? The Government has signalled a desire to support the Impact Economy, but how soon will we see the much-needed support charities need? We are left with more questions than solutions to the tough landscape the charities sector is already navigating.

The charities sector is an incredibly diverse and robust sector. However, greater government support would have been welcomed. It very much feels all quiet on the charities front. 

Please note: if you have any concerns regarding the tax implications affecting you from the Budget or otherwise, it is important you obtain appropriate advice from a tax expert.