Charity Tax Group has welcomed new recognition by the European Commission of the VAT burden on charities, but is disappointed that no new solutions have been proposed.

The EC has just published its proposals for the future of the VAT system in Europe, following a green paper published a year ago and a subsequent consultation.

Charity Tax Group was concerned at the lack of reference to charities in the green paper, particularly the absence of any real attempt to tackle the problem of irrecoverable VAT, and has been concerned that business interests have dominated discussions since.

CTG submitted its own response to the consultation in conjunction with its EU-wide sister body, ECCVAT, highlighting the importance of charities and their unique position within the VAT system.

However, the new proposals issued by the Commission this week do not suggest that the cause of charities has won much ground.  “Although the communication recognises the strength of concern among charities and shows an increased awareness by the Commission of the issues for the sector, there are no radical proposals on how to deal with the problem,” said CTG in a statement.

While the new EC document “calls on member states to make use of the existing options to alleviate the burden of VAT on non-profit-making organisations”, the only solution it proposes is wider use of targeted refund schemes and continue reliance on social exemptions – exemptions that the Commission plans to gradually withdraw anyway.

CTG added: “The Commission also appears to have ignored the potential impact on the sector of its proposed reduction in exemptions and reduced rates.  Unless the targeted compensation scheme that it advocates is introduced – and this would be very much at the individual discretion of member states – the VAT burden on the sector could increase significantly.”

However, CTG welcomed a call in the document for member states to make use of existing options to alleviate the VAT burden. “These are welcome remarks but we now need to turn them into concrete commitments from the UK government.”