The Charity Tax Group (CTG) is calling on the government to introduce a new ‘special charity VAT rate’ on purchases, after research shows that VAT now costs charities £1.8bn per year.
New research commissioned by the CTG and undertaken by London Economics suggests that added tax continues to “place a significant burden on UK charities.” To tackle this “increasing VAT burden”, the group reviewed a number of reform options. With plans to submit this proposal to the Treasury Select Committee Inquiry on Tax after Coronavirus and as part of its next Budget Submission.
According to the CTG, the total tax contribution made by charities is £10.1bn a year. It is also the group’s belief that a lower rate of VAT on purchases would allow charities to “spend more in support of their charitable aim of providing much needed services” – something that they state would be “particularly helpful” as part of the recovery from the Covid-19 pandemic
John Hemming, chairman, CTG said: “The research is very timely: there are various reviews underway looking at how VAT should operate after Brexit. Charities benefit from some important reliefs, but also incur significant irrecoverable VAT.
“There are both opportunities and risks for the sector as we need to protect the reliefs that we currently have and we also need help with the increasing cost of irrecoverable VAT.”
He added: “For too long, VAT has been a burden on charitable activity: we have looked at ways to solve the problem and are proposing the introduction of a special VAT rate for charity purchases.
“This would result in significant VAT savings for all charities and free up funds for essential services. This is a clear and practical solution to address this problem and support the valuable work UK charities are doing on behalf of us all.”