Charity Tax Group will press European Commission to keep charity VAT exemptions

The European Commission is working on an overhaul of the tax system that could see the removal of the charity tax break

Helen Donoghue, director of the CTG
Helen Donoghue, director of the CTG

The Charity Tax Group will meet members of the European Parliament and ask them to lobby against VAT proposals that could cost the UK charity sector hundreds of millions of pounds a year.

The European Commission is currently working on a widespread reform of the VAT system in Europe.

Late last year, it published a green paper that put forward an option to lower the overall rate of VAT but also remove all VAT exemptions, including existing "social exemptions" used by charities. This would simplify the VAT system for business, but would increase VAT costs for the voluntary sector.

A European Parliament committee has already called on the commission to propose a mechanism that would allow member states "to generally exempt from VAT all or most of the activities and transactions" carried out by charities.

Helen Donoghue, director of the CTG, said: "We’re now looking to brief the MEPs who were particularly active in introducing that, in order to get them to raise the profile of the issue in Brussels."

The commission consulted on its plans to reform VAT earlier this year and is expected to publish its summary of responses by the end of the year. After that it is expected to carry out a number of impact assessments for different groups.

"It’s vital we have a significant enough profile that there will be one for the not-for-profit sector," said Donoghue. "We need to make sure that if there is any threat to the social exemptions, we’re able to get something else put in their place.

"At the moment, we have to second-guess the commission, because we don’t know what proposals they’ll put forward."

The CTG is a member of European tax pressure group Eccvat, which warned that charities have been "effectively ignored" in the green paper.

"The consultation document makes a number of references to removing exemptions without considering the impact of such a move on charities and their beneficiaries," it says. "We caution against radical reform of the VAT system without the requisite assessment of its impact on public bodies and, particularly, on charities and not-for-profit foundations."

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