Charities face losing hundreds of millions of pounds in VAT reliefs if they do not persuade the European Commission to retain a series of 'community exemptions', the Charity Tax Group has warned.
The commission is consulting on its green paper on the future of VAT, Towards a Simpler, More Robust and Efficient VAT System, which will consider all aspects of public sector VAT, including the charity sector. The consultation runs until the end of May.
The main community exemptions that the commission affords to charities are VAT breaks in areas such as health and welfare services, education and fundraising.
Peter Jenkins, VAT adviser to the CTG, which campaigns for a better deal for the voluntary sector on tax, said many respondents to the consultation favoured taxing more activities with a lower overall rate of VAT. This would, however, entail removing the community exemptions enjoyed by charities, which could cost the UK charity sector hundreds of millions of pounds a year, he said.
"Many people who are responding to this consultation work in business, and they favour broadening the base of VAT and taxing at a lower rate," said Jenkins. "There's little awareness of the impact such changes could have on charities.
"We want charities to speak out about how important these exemptions are. We need to explain the importance of these schemes to the sector."
Jenkins said the sector in the UK could benefit if more rate reliefs that exist in European law were applied in the UK, and if simpler and more effective rules were introduced for handling partial exemption – a situation in which some of a charity's activities are taxable and some are exempt.