The Charity Finance Directors' Group has claimed that the voluntary sector is "fast becoming one of the most taxed sectors of the UK economy".
The claim comes in a letter to economic secretary to the Treasury John Healey, in which CFDG hits back at Treasury assertions that EU agreements mean it can't give VAT relief to UK charities.
Healey had written to several MPs stating that "long-standing formal agreements with our European partners mean that we cannot extend the range of VAT reliefs or introduce new ones".
The MPs had questioned the VAT treatment of charities following the publication of an Early Day Motion in March calling for measures to remove the "crippling financial burden" on charities represented by irrecoverable VAT.
However, CFDG disputes Healey's claims, pointing to an assertion in February by the head of the European Commission's Indirect Tax Unit that there were no obstacles to the introduction of recovery systems for charities' VAT (Third Sector,12 February).
CFDG also argues that the Government's £125 million Futurebuilders fund is inadequate.
"A one-off payment can hardly be seen as any sort of compensation for the huge obstacles to service delivery created by the £400 million that is lost every year though irrecoverable VAT," writes CFDG director Shirley Scott.
However, a Treasury spokesman said the Government could not unilaterally introduce VAT reliefs without agreement from other EU states.