New research commissioned by the Charity Tax Group [CTG] and undertaken by London Economics shows that VAT continues to place a significant burden on UK charities, with irrecoverable VAT now costing charities £1.8bn a year. The research also highlights the importance of existing VAT reliefs and exemptions for the charity sector, against a backdrop of calls for a widening of the VAT base both in response to Brexit and to pay for the cost of the COVID-19 pandemic. The reports can be found below:

• Charities and VAT: an evaluation, Charity Tax Group, December 2020
• The value of VAT reliefs for the charity sector, London Economics, November 2020
• CTG VAT launch slides
• NEW: Recording of the launch (approx 1 hour)

To tackle the increasing VAT burden, CTG has reviewed a number of reform options. At this stage, CTG is calling on the Government to introduce a new special charity VAT rate on purchases, to complement existing reduced and zero rates and the social exemptions. The proposal is simple, benefits all charities, and could be adjusted depending on economic circumstances. There would be a number of practical issues to consider to ensure a smooth implementation and to minimise additional administrative burdens, but CTG plans a series of discussions with members to iron out the finer details.  CTG will then be submitting this proposal to the Treasury Select Committee Inquiry on Tax after Coronavirus and as part of its next Budget Submission.

The research quantifies for the first time the value of existing VAT reliefs on purchases (£0.8bn) and the impact of VAT on charity sales and service delivery. Until now, there have been no comprehensive figures for the amount of VAT relief charities claim, nor the ability to evaluate effectively the impact on charities of changes to the VAT system. The research also demonstrates, for the first time, the total tax contribution made by charities [TTC] which amounts to £10.12bn a year and quantifies the reliefs available to them.

Launching the research yesterday, to an audience of almost 150 charities and advisers, John Hemming, Chairman, Charity Tax Group, commented:

“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.  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.”

This research was made possible by generous grants from the City Bridge Trust and Paul Hamlyn Foundation for which CTG is very grateful. If your charity would be interested in supporting more research and policy work relating to VAT reform and the socio-economic value of tax reliefs, please contact info@charitytaxgroup.org.uk.

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