Newsmaker: Taking on the taxman - Give back the VAT

Mathew Little

Helen Donoghue director, Charities' Tax Reform Group - Leading the fight for a better deal on VAT for the sector.

"I wish," says Helen Donoghue with a grin, "that RNLI would go on strike. That would show the injustice of it all and force the Government to stump up the cash."

The director of the Charities' Tax Reform Group's tongue-in-cheek suggestion betrays a new mood of militancy in the sector over VAT.

For each pound donated to the RNLI, 3p is paid to the Government in irrecoverable VAT. For other charities, such as the National Trust, the tax takes more than 10 per cent of annual income. The sector as a whole pays - at a conservative estimate - £500m a year in VAT. Some have suggested the true cost is closer to £1bn.

Years of negotiation with Whitehall have yielded little more than tea and sympathy. So the CTRG has decided to try to change things by going on the offensive. Polls have been commissioned to show the depth of public support, MPs are being bombarded by letters from lifeboat stations and conferences are being organised.

"Most people are unhappy about charities paying tax," says Donoghue.

"When Mori did a poll for us in 1995, 84 per cent said that registered charities should be exempt from all taxes. Bob Worcester, chairman of Mori, said this was the strongest response to any poll Mori had conducted. We want to reflect that by being more public in our campaigning."

The CTRG might appear to be a consummate insider lobbying group, finally goaded into action by political indifference. But the group has resorted to campaigning tactics before. Founded in 1982 by liberal-leaning Conservative MP Tim Yeo, then director of the Spastics Society, its youth was spent trying to prod the Thatcher Government into concessions on VAT. "We'd have petitions, we'd take lifeboatmen up Downing Street, we had press coverage and even sent a 'VATenline' to the Chancellor on 14 February," says Donoghue.

In its own way, she says, it worked. Concessions, such as the introduction of zero rates to protect charities, were negotiated, worth £300m a year.

It was effective then, so can it work now?

"Evidence suggests this Government is responsive to the public mood, so we are hopeful," says Donoghue. But she is also confident that ministers will be persuaded by the merits of the case and the inconsistency of their own position.

This is a Government that aspires to create a level playing field so that charities can deliver more public services, she says. Yet it is prepared to tolerate the anomaly of a system that allows public-sector organisations to reclaim VAT but denies that right to potential fellow service providers in the voluntary sector.

"The situation has shifted since the tax review of 2000, when they said VAT was too hard to resolve, because now there is greater emphasis on charities being involved in the provision of services," says Donoghue. "They are at a great disadvantage when you look at other providers."

But it is not really the Government's fault, she adds. Charities are casualties of a European tax system designed in the 50s and 60s without their needs in mind. It is based on VAT exemptions that penalise service providers because they stop them charging VAT and thus recovering the VAT they incur on related costs.

The CTRG wants the Government to work for a long-term modernisation of that VAT system, but in the meantime introduce interim grant reliefs.

Donoghue concludes: "This has to be sorted out if charities are to play a part in the provision of services and be a proper part of the economy."

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