News: VAT reform campaign - Treasury agrees to meeting to talkabout tax anomalies

Mathew Little

The Charities Tax Reform Group will meet Treasury officials today to discuss the campaign to get a fairer deal on VAT for charities.

The Government made the invitation after Third Sector last week revealed CTRG's intention to end its "softly, softly" approach to VAT reform.

Director Helen Dono-ghue said the group wanted to highlight the irony of the effect of the Government's stance on VAT in cancelling out its wide-ranging tax incentives for giving.

"The Government has been very generous in granting tax concessions on giving, without recognising that as soon as charities spend the extra money they find it is taxed," she said.

The CTRG wants the Government to use its six-month presidency of the European Union, which begins on 1 July, to initiate a review of the taxation of charities across Europe.

"It seems a golden opportunity for the UK to show its commitment to the sector by tackling this impediment to charities playing their full role in the delivery of public services," said Donoghue.

Such a review would look at the exemptions that mean charities are not allowed to charge VAT on their services and fees. As a result, they cannot recover the VAT on associated costs. CTRG wants all charities that make charges to be permitted to charge VAT at a reduced rate so they can recover the associated VAT.

For charities that provide services for free, such as the RNLI, the CTRG wants the Government to resurrect a 1992 European Commission proposal that all charities should have reduced rates of VAT on their purchases.

But the holy grail of the CTRG campaign is an EU-wide refund scheme to ensure all charities that provide services free of charge do not pay irrecoverable VAT - as is true for the public sector.

"Charities are taxed as the final consumer even when they are not," said Donoghue. "It is the people they help who are."

KEY FACTS

- Charities Tax Reform Group representatives will meet Treasury officials today

- The CRTG will highlight the anomaly that means charities get tax breaks such as Gift Aid yet lose even more in VAT

- CTRG will call on the Government to use its EU presidency to kick off a review of charity taxation across Europe

CASE STUDY - FIELD STUDIES COUNCIL

The Field Studies Council is an environmental education charity whose main activity is providing environmental courses. The council cannot charge VAT on these courses because they are treated as educational and are therefore exempt from VAT.

It can charge VAT on the equipment it hires out from its field centres and on the drinks it sells in the bars of two of its training centres - but this only amounts to a small proportion of its activities. Because the amount it can reclaim is restricted to the same proportion, it can only get back around 13 to 14 per cent of its input VAT (the VAT it pays on its purchases).

As a result, the charity is unable to claim back between £200,000 to £250,000 each year, that equivalent commercial and public-sector training organisations would be able to recover.

Chris Bayliss, secretary and treasurer of the Shropshire-based Field Studies Council, said: "Our costs, effectively, are 15 per cent higher for exactly the same services, which seems a little unfair considering charities are supposed to have tax benefits compared with commer-cial organisations."

Bayliss said that if the council were able to recover this lost VAT, it could offer its three-and-a-half day courses to 2,000 more students each year or refurbish one of its 15 residential course centres.

"Our centres are rambling old country houses, which are lovely and full of character but very costly to maintain - much more so than your average modern office building. Almost invariably that expenditure has VAT on it.

"We have learned to live with it but that doesn't mean that we like it," he said.

CASE STUDY - MARIE CURIE CANCER CARE

Marie Curie Cancer Care provides free care to around 25,000 cancer patients and their families each year - through its 10 hospices, daycare centre and nurses who visit people in their own homes. Its scientists carry out research and its trainers run courses for healthcare professionals.

During 2004/05, the charity spent £83m and paid £1.3m in irrecoverable VAT. A vast chunk of this was attached to investment in buildings and IT, to set up and run a modern call centre and patient-booking system that ensures patients are matched with available nurses. Even the costs of telephone calls to district nurses and patients come with extra VAT attached.

Delivery of all care is carried out in partnership with the NHS, which covers between 30 and 40 per cent of the costs of providing the service - yet the NHS does not suf-fer VAT on similar expenditure items.

Finance director Claire Newton said the VAT regime for charities can really skew decisions. Even collaborating with other voluntary sector organisations to share support functions would see extra VAT added to the costs.

"Major building works is another example," she said. "Building a substantial extension to one of our hospices or carrying out a major refurbishment project costs us 17.5 per cent more than it would the NHS. Only by knocking down an existing hospice and finding temporary facilities for three years while erecting a brand new building could we avoid the VAT on the building costs."

If Marie Curie were able to reclaim the £1.3m it loses, 1,500 more patients could be cared for at home, added Newton.

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