Charities 'paying £78m of unnecessary energy taxes this year'

Price comparison service says many aren't aware of discounts and exemptions

It is estimated charities will pay about £78m of unnecessary tax on their energy bills in 2011
It is estimated charities will pay about £78m of unnecessary tax on their energy bills in 2011

Charities will pay about £78m of unnecessary tax on their energy bills in 2011, a price comparison service has estimated.

According to a survey by Make It Cheaper, almost of half of third sector bodies do not know they can get a VAT discount and are exempt from the climate change levy.

Make It Cheaper says that of the 472 charities it surveyed, 46 per cent did not realise they were exempt from the levy, a charge on businesses to pay for services to reduce carbon emissions, and only have to pay 5 per cent VAT on much of their energy costs.

Based on the research, the company estimates that charities could reclaim up to £145m in overpaid tax over the past three years. However, the survey says that more than two-thirds of charities do not know they can get a rebate.

Charities have to pay only 5 per cent VAT on energy used for "non-business activities" for which the charity’s only income is donations or grants, according to the HM Revenue & Customs website. They can get the VAT discount on all their energy supplies if these non-business activities account for at least 60 per cent of their energy.

Business activities include fundraising events, such as jumble sales, where payment is received for goods or services. They can also claim tax discounts on energy used in services for poor, disabled, ill or elderly people provided significantly below cost.

Charities have to send a certificate, including their charity number, to their energy supplier to claim the discount.

A spokesman for HM Revenue and Customs said businesses should contact HMRC if they were unsure how much VAT they should pay on energy.

"Any charity that considers it should be paying the reduced rate of VAT at 5 per cent and is excluded from the climate change levy can submit a VAT certificate to its energy supplier," he said. "It can make a back claim for up to four years if it has got things wrong."

Jonathan Elliott, managing director of Make It Cheaper, said: "There's an awful lot of money being prevented from going to good causes quite unnecessarily."

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