Government proposals to levy the full rate of VAT on alterations to listed buildings are a "new tax on community initiative", according to the Heritage Alliance.
In its response to HM Revenue & Customs’ consultation on the plans, which closed on 4 May, the group, which is an alliance of 92 heritage organisations, said small building projects in particular would struggle to raise the extra 20 per cent they would need to pay the tax.
The group said the government was "effectively pushing the VAT burden onto the Heritage Lottery Fund" which gives grants to some of the projects.
The National Trust, which owns thousands of listed buildings, said in its submission that the 2,500 listed buildings it owns that the public cannot pay to visit would be hit by the proposed change.
"The proposals will have a serious financial impact on charities which own or occupy listed buildings and who need to make better use of the building through alterations or extensions," it said.
It said the zero VAT rating should be retained for alterations to listed buildings that are owned or operated by a charity.
The zero rating helped listed building owners bring their buildings up to modern standards which ensured their future survival, it added.
Additional tax burdens would lead to buildings falling into disrepair or being upgraded without listed building planning consent by contractors who are not registered for VAT, its consultation response said.
Meanwhile, George Osborne, the Chancellor of the Exchequer, announced an extra £30m a year for the listed places of worship grant scheme, which provides grants to churches to cover VAT on repairs. He told MPs yesterday that the new cash would repay all VAT paid by churches on both repairs and alterations.
The Rt Rev Richard Chartres, the Bishop of London, who led the discussions with the Treasury, welcomed the move.
But Caron Bradshaw, chief executive of the Charity Finance Group said: "It is promising that government recognises the impact that removing the zero rating will have on churches. However, by failing to acknowledge the effect this will have on others in the sector, they are leaving many charities in the lurch."
Sir Stuart Etherington, chief executive of National Council for Voluntary Organisations, said government proposals to increase VAT on alterations to listed buildings and the tax relief cap on donations were indications that "charities have slipped down the list of priorities".