In the Budget last March, the Chancellor of the Exchequer, George Osborne, announced a VAT relief on fuel for air ambulances and inland water rescue charities. In December's Autumn Statement came a further relief for air ambulances, and a new one for hospice charities. Both were welcomed, but some experts argued that these charities should not have been paying VAT in the first place because other, similar charities had enjoyed equivalent reliefs for decades.
Helen Elliott, a partner at the accountancy firm Sayer Vincent, describes it as "outrageous" that hospices were footing VAT bills when hospitals doing essentially the same thing were not. She also questions the government estimate of the cost to the public purse of the new relief at only £5m a year; she says four hospices that she audits could together be eligible for as much as £1m.
"I hope they're not going to restrict it in some way," she says, citing the example of VAT rebate schemes for churches: HM Revenue & Customs earmarked a set amount of money, then distributed it pro rata to the charities that applied, rather than automatically paying back the full amount of VAT paid. She says such schemes are unfair and unsatisfactory.
Charities are keen to avoid paying VAT wherever legitimately possible, and the tribunals have ruled this year in several cases about charitable VAT rebates - notably the British Film Institute, Longridge on the Thames and the Serpentine Trust. Socrates Socratous, director of SOC VAT Consultants, says: "We're finding that tribunals are probably reaching more conflicting decisions than before. I've also noticed a more aggressive stance from the revenue in the past two or three years - they are now more likely to challenge you."
HMRC sometimes says there is a legal objection to VAT being refunded by means of a grant, but there is a general feeling that they could give more grants than they actually doGraham Elliott, a consultant at law firm Withers
These rulings might have brought clarity, but their piecemeal nature means that the VAT minefield is as treacherous as ever for charities. Sir Peter Luff, the Conservative MP for Mid Worcestershire, was so concerned by the sector's VAT position that during Prime Minister's Questions before the Autumn Statement he raised the matter of a VAT issue faced by a boxing club in his constituency that hoped to build new premises.
Socratous says: "It is ironic that a huge multinational company that is carrying out only business activity is likely to be in a much simpler position than a charity as far as VAT is concerned." In an ideal world, of course, charities would be in a simple position - they would not have to pay VAT at all. But this will not happen any time soon because VAT rules derive from EU laws by which the UK must abide.
But Helen Elliott and Graham Elliott (no relation), the latter a consultant at the law firm Withers, both feel the government could do more to help charities out. He says: "HMRC sometimes says there is a legal objection to VAT being refunded by means of a grant, but there is a general feeling that they could give more grants than they actually do, and that they are hiding behind a mistaken view of the law." Helen Elliott says the government sometimes uses the EU factor as a "get-out".
Graham Elliott doubts there will be much in the way of VAT reform for charities and other organisations, despite the acknowledged difficulties. "The progress of these reform ideas is so slow that there is little point in investing time and energy in considering their practical impact in specific cases," he says.