CTG warn of impact of the Budget VAT increase on charities

The increase in the standard rate of VAT from 17.5% to 20% from 4 January 2011 will increase the irrecoverable VAT burden of charities by at least £150 million per year. At a time when charities are being asked to do more as part of the Big Society initiative to supplement and replace provision of social welfare and other services by the State, CTG (Charity tax Group) feel this will be wholly counter-productive as it will directly impede their vital work.

“We fully understand the Government’s urgent need to tackle the deficit through spending cuts and tax increases,” says Helen Donoghue of the Charity Tax Group. “But it has also emphasised the need for fairness and protection for the least well off and, as our research has shown, the impact of this VAT increase will have a detrimental and disproportionate effect on the charity sector.

“We are therefore strongly urging the case for special protection for charities against this increased burden through a limited rebate scheme. This would refund by matching grant the extra VAT incurred where it relates to their essential non-business expenditure.”

The Charity Tax Group represents over 400 leading charities. It was formed in 1981 to press the case for tax reform, especially of the VAT system as it affects charities. Irrecoverable VAT has represented a huge and growing problem, directly impeding the vital work of charities. Please read thier research paper, prepared in anticipation of the Budget which shows in graphic terms the impact on a sample of 87 charities extrapolated to the sector as a whole, of the increase in the VAT rate to 20%. It can be found as a downloadable pdf at http://www.ctrg.org.uk/files/?id=221