A tax expert has warned charities that there is a “concrete danger” of their losing a host of VAT reliefs in the event of a no-deal Brexit.
Speaking at Charity Tax Group’s annual conference last week, Luigi Lungarella, director of indirect tax at PFK Littlejohn, said charities’ problems with VAT claims could be exacerbated by the UK’s withdrawal from the EU.
He said: “Charities have real problems in relation to VAT. I fear that should the UK leave the EU, and certainly should the UK leave the EU without a deal, these problems may end up being enhanced further.”
Lungarella said that post-Brexit many VAT reliefs would be under threat, including those related to education, care and welfare, health, physical recreation, culture, professional bodies and trade unions, charity fundraising, land and housing, cost sharing.
He said these tax reliefs had been “taken for granted for decades” by charities, but warned they are “likely to come under great scrutiny once the UK leaves the EU”.
“These are no longer future-proof. If the UK has no ties to a European VAT regime post-Brexit, the government will inevitably take stock of how it can best use the UK VAT system to achieve its own goals,” he said.
“There is likely to be a comprehensive review of the reduced rate, there is likely to be a comprehensive review of the zero rate. There is also likely to be a comprehensive review of exemption schedules.
“This could lead to significant risks but it could also lead to significant opportunities for the charity sector. Existing reliefs provided by European law need to be defended where not also extended.”
Lungarella added that in the short term after Brexit, charities might not be able reclaim VAT incurred in EU countries.
He said: “There is a concrete danger of incurring any VAT costs in for example Spain or Italy, but for other member states as well you will just not be able to reclaim them altogether until they update the legislation, which of course is something that can take some time.”
VAT research project
Lungarella said the uncertainty over the future of UK charities’ VAT reliefs meant there had “never been a better time” to support CTG’s VAT research.
Announced last year, CTG plans to analyse all the VAT reliefs available to charities, and will commence work on the project this summer.
CTG estimated when it was announced that the report was expected to cost about £75,000 to produce, and said it had already raised £40,000.
The project has now been split into two parts. The first will be undertaken by research consultancy London Economics, which will undertake a survey of charities to quantify the value of reliefs and exemptions and the level of VAT recovery.
The second stage will then focus on the socio-economic value of reliefs provided to charities and the activity that they are able to undertake as a result.
Speaking to Civil Society News, CTG said sufficient funding has been received for stage 1 to proceed, but the organisation is in the process of agreeing the final costs of stage 2 with potential suppliers.