FINANCE NEWS: Finance directors warn over VAT

MATHEW LITTLE

The sector could face a £150 million hike in its tax bill if speculation that chancellor Gordon Brown will increase VAT and National Insurance in next month's Budget proves correct.

The Charity Finance Directors Group (CFDG) has warned that Brown may raise VAT from 17.5 per cent to 20 per cent.

CFDG says this will mean the sector's irrecoverable VAT will go up by around £100 million a year.

Leaks have also suggested that the Budget will see a 1 per cent increase in employers' NI contribution. With charities' payroll bill at around £5 billion, CFDG says this could cost the sector an extra £50 million a year.

CFDG director Shirley Scott warned that if the tax changes were enacted, they would destroy the benefits to the sector from Brown's introduction of tax incentives to giving made two years ago.

"Since 1979, there has been a major shift from direct to indirect taxation, which has cost the charity sector dearly,

she explains. "In that time, the Treasury has increased the standard rate VAT from 8.5 per cent to 17.5 per cent and the basic rate of income tax has come down from 33 per cent to 22 per cent.

"As income tax reduces, the sums rebated to charities reduce; charities are subject to indirect tax rises and the shortfall is compounded. Any increase in VAT or National Insurance rates would negate the benefit from the tax-efficient giving schemes promoted in the 2000 Budget."

Stephen Burgess, charities consultant with Saffery Champness, said if the Treasury was intent on raising VAT and NI it should compensate the sector by extending tax breaks to encourage donations.

He called for a commitment to continue the 10 per cent bonus the Government now pays on payroll-giving donations beyond the end date of April next year. The same top-up should also be introduced for all company giving.

"If we are going to get a kick in the pants from VAT, we should also get a kick start for company giving,

he said.

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