Charities routinely request more than £1,000 from individuals who wish to raise money by running in the marathon. Simultaneously, charities are charged £250 by race organisers to ensure guaranteed 'golden bond' places.
Presently, charities that pay for golden bond places, and ask individuals to make deposits of more than £250 to enter the race, must pay VAT on both. But Customs and Excise says that if the required deposits are less than £250, it will waive VAT on the golden bond charges and only charge it on the runners' deposit.
National newspapers reported last week that the Treasury was to start using "little-known powers" to demand VAT on the £250 golden bond fees paid by charities. But a Customs and Excise spokeswoman said this has been the case since fundraising law was last changed in April 2000.
"Golden bond places quite clearly represent charities paying for something and getting something in return, so normal VAT rules apply," said Judith Warner, senior policy adviser at Customs and Excise.
Nevertheless, the reports that money raised would be subject to VAT sent panic through the sector that the public would decline to pay their sponsorships, amid fear that some of their money would go to the Treasury.
Warner believes that the misunderstanding has resulted from new draft guidelines to simplify fundraising law for charities, which have been seen by some charities, but aren't due for publication until later this month.
"There isn't anything new in this at all," she said. "There is absolutely no question of Customs having any clampdown. It is quite the opposite. We are actually trying to find a way to help charities avoid any unreasonable costs."
The Charities' Tax Reform Group backed up Warner's claims. "Customs and Excise has been very helpful in this matter," said Helen Donaghue, the group's director. "Unfortunately, the new guidance hadn't been printed before the marathon."
The group has asked the Treasury to make a permanent dispensation to refund any currently irrecoverable VAT, such as that paid on golden bonds and individual minimums from the London Marathon, to charities.
Another way around paying VAT on minimum fundraising amounts, say the group, is not to set them, and instead ask runners to pledge to raise certain amounts, but not require that payment in advance.