The government is considering publishing a guide on grants and contracts for the third sector.
The guide, aimed at public sector commissioners, would explain the differences between grants and contracts, and the benefits of each.
Hemming said the publication would alert people to the differences between grants and contracts. The government's 'right to provide', which allows public sector workers to take over and run their services as mutual organisations, had increased the need for guidance.
"It's still at an early stage, so we're not sure exactly what will be involved," he said. "One thing that is needed is a clear explanation of when it is appropriate to give a grant or a contract."
Hemming said the CTG supported greater use of contracts because they enabled charities to recover VAT. "We think it's important to educate bodies, such as councils, about the fact that charities can't often recover much of their VAT, so a contract is considerably more cost-effective," he said.
Pauline Kimantas, local commissioning and procurement unit manager at the local infrastructure group Navca, said that giving a grant to a voluntary organisation did not trigger a bidding process, which was often a bigger concern for the sector than VAT.
"It's dangerous to argue in favour of contracts on the basis of VAT," she said. "Grants often come with much less bureaucracy. They can also be a lot more flexible than contracts."
No one at the Cabinet Office was available for comment.