Charity sector groups call for overhaul of VAT to help the voluntary sector

VAT places a ‘significant burden on UK charities’ and is in urgent need of reform, voluntary sector bodies have told MPs.

The call comes from the Charity Tax Group (CTG), National Council for Voluntary Organisations (NCVO), Charity Finance Group (CFG) and the Chartered Institute of Fundraising (IoF) in response to a House of Commons Treasury Committee inquiry.

The committee’s Tax after Coronavirus inquiry is looking at how the UK’s tax system can help alleviate pressures on organisations, such as globalisation and technology reform, after Covid-19.

In their response to the inquiry, the group told MP that at least £2bn was paid in both business rates and irrecoverable VAT last year by the charity sectoe, which is “significantly more than is commonly perceived to be the case”.

“As charities often provide services that are either exempt from VAT or outside the scope of the VAT system, they are unable to recover the VAT that they pay on the purchases incurred to help their beneficiaries. They are, in effect, treated as the final consumer, even when they are not.

“The UK standard VAT rate of 20% compounds the cost to charities at a time when their services are more in demand than ever.”

Research by the Charity Tax Group highlighting the role of VAT reliefs and exemptions is due to be published shortly.

The sector groups say this will “provide strong evidence that VAT continues to place a significant burden on UK charities, despite existing reliefs. It thus reinforces the rationale for significant structural reform to reduce the level of irrecoverable VAT facing charities.

Their response to the inquiry adds: “A fundamental review of VAT should be at the forefront of the Government’s policy agenda for the charity sector.

“Any attempts to broaden the VAT base or remove reduced VAT rates should take into account what the unintended consequences for charities might be.”

Their response to the inquiry also reiterates charities’ call for a temporary increase to the level of Gift Aid that can be claimed on donations, to help the sector recover from the Covid-19 pandemic.