The voluntary sector will face a rise in its VAT bill of more than £100m after the general election, the Charity Tax Group has predicted.
The temporary 15 per cent VAT rate announced in the last Budget is due to revert to 17.5 per cent in January, and Helen Donoghue, director of the CTG, warned that the rate could rise again after the general election, which must be held before 4 June.
"When Labour originally produced the VAT cut, it published information saying that it expected VAT to rise to 18 or 19 per cent after the election," she told Third Sector.
"Although they have since retracted that statement, we know that they will need to raise a lot of money to meet the high level of Government debt. And VAT is one of the simplest ways of raising lots of money quickly."
Donoghue pointed out that Vince Cable, the Treasury spokesman for the Liberal Democrats, had told a fringe event at his party's annual conference in Bournemouth that if the Conservatives were to come to power after the next general election they would raise the tax to 25 per cent within months.
"I'm not sure they would go that far," she said, "but a smaller rise is very likely, and that would be extremely bad for the sector." Such an increase could add more than £100m to the sector's VAT bill, she said: "This is one of the biggest concerns we have at the moment."
It is estimated that irrecoverable VAT costs the sector about £500m a year, although some VAT experts believe the actual figure is well over £1bn.
Charities that work overseas are also facing an increase in their VAT bills and administration costs when a new scheme is introduced in January.
Under the changes, VAT will have to be paid in the country where a product or service originates.