Charities are penalised under the current VAT system, decided in Europe, because they can’t charge VAT on the services they provide for free, and so cannot recover the VAT on their expenditure.
The European Commission has long acknowledged that the VAT system treats charities unfairly and has said the best solution is for the UK government to give charities a grant to cover the irrecoverable VAT that they pay. But the UK government has refused both on grounds of principle and cost.
What is particularly unfair is that a charity can spend a much greater percentage of its turnover on VAT than the commercial organisations with which it competes for public service contracts. In some cases, the percentage can be as high as 15 per cent and is usually well in excess of 10 per cent of the charity’s voluntary income.
There are extensive reliefs for certain charitable activities that are affected by exempting them from VAT. However, these social reliefs apply to the outputs of charities and do not deal with the main problem of the cost to charities of irrecoverable VAT incurred when providing these services, effectively making the charities significantly worse off.
In late 2009 the EC is due to launch a major consultation on the legislation covering VAT - the Principle VAT Directive - at which the UK’s Charity Tax Group plans to highlight the unfairness of the existing law.
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Under new regulations charities will face increasing postal costs of nearly £18m as VAT will now be charged on bulk mailing.
The government will waive the VAT on sales from this year’s X Factor charity single which went on sale yesterday.
The Direct Marketing Association has set up a new advice service to help charity marketers understand the VAT concessions available to them.
Life for a small charity - jack and master of all trades
Think you've got it tough out there? Try being a charity with less than £1m income, says Cath Lee.
The Charity Finance Directors' Group has called on the government to review tax policies which often burden the charity sector, such as tax avoidance and tax relief, in its response to a government consultation on tax policy.
Nick Cater is delighted by one announcement in the 2010 budget report.
The law of the draw: Legal considerations for charity raffles
The fact a cold raffle mailing will typically generate 300 per cent more response than a cause-focused cash ask makes it almost irresistible, but be sure to observe the law, says Clive Mollet.
I’m starting to think that the recession is actually good for charities. A decade of growth has left us fat and unfocussed. Now everyone is taking a long hard look at how they use their time and re-rationalising what is effective. I say everyone, but maybe not at sector level. The sector’s “key umbrella bodies” are using their (our?) time to build a case for the government to change the rules on gift aid. Numerous reports have shown that charities are just not maximising their use of the current gift aid system.
John Tate says the web is a real danger to charities’ reputations.
The big sell
With the prospect of decreasing levels of voluntary donations looming, charities could do well to look at earning their own income in order to shore up their future. Celina Ribeiro looks at the legal and cultural issues at play
A VAT expert has warned that a lack of detailed records may prevent some to charities benefiting from a recent House of Lords decision that could see them entitled to reclaim millions in overpaid tax returned to them
An early day motion has been tabled to parliament calling for charities to be made exempt from paying VAT on text messages
All that glitters: a fundraising farce
A textbook example of what not to do when getting involved with a professional fundraiser.
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