Charity Tax Group gathers views on VAT and outsourcing

Tax rules are preventing charities from hiring third-party services, say experts

Charities are being asked to contribute to research that could help to give them VAT relief if they outsource their back-office functions.

The Charity Tax Group, which campaigns to win charities a better deal on tax, is gathering evidence on the extent to which charities want to outsource functions such as IT and human resources.

The CTG believes many charities do not outsource these functions because they have to pay VAT they cannot reclaim, making it up to 15 per cent more costly for them than for businesses.

"We're sending a questionnaire to our members and those of other umbrella bodies asking them for examples of how charities could share back-office functions," said Mathieu Mori, policy officer at the CTG.

"An EU directive already says charities shouldn't be charged VAT on this, but the Treasury is reluctant to implement it."

Mark Freeman, chief executive of Charity Business, which outsources charity finance functions, said that the inability to recover VAT was a major problem for charities that wanted to outsource functions.

"It's certainly prevented some charities from doing it," he said. "The CTG tells charities that they must be able to get services at least 20 per cent cheaper when they outsource - that is, before VAT is taken into account - or it won't be worth their while."

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