Charity Tax Group is to ask the government to give charities the same VAT relief on non-business expenditure that local authorities are entitled to, on the 2.5 per cent VAT increase announced in today’s Budget.

Peter Jenkins, consultant to CTG, said such a rebate could legally be provided via a matching grant such as that provided to local authorities, and would save the sector between £50m and £70m a year.

Jenkins said the impact of the 2.5 per cent VAT rise on the sector – estimated by CTG to cost the sector £143m - would be “huge”.

“The £1bn total that irrecoverable VAT costs the sector does not paint the true picture of how this affects individual charities,” he said. “It adds millions of pounds to the accounts of some of the big national charities that provide social welfare services, because these services attract enormous amounts of VAT.

“This £143m cost actually penalises those that are most socially active. At a time when the government is saying ‘we really need your help’, this is directly counter-productive.

“Each pound they manage to raise from donors goes that much less far in providing the social fabric that is so vital.”

Jenkins said the rebate being sought was “not special pleading” but would provide some measure of protection to charities affected. It is not illegal under European law and in the past HMRC has said it would not be difficult to administer, he said.

CTG suggested the rebate in its Budget submission but heard no response. But now that it knows how big the VAT hike will be, it plans to launch an immediate campaign on the issue.