The European Commission might seek the gradual withdrawal of European "social exemptions" for VAT, which are currently estimated by the Charity Tax Group to be worth hundreds of millions of pounds to UK charities.
In a proposal document for the future of EU VAT, published yesterday, the commission says it will examine whether there is still justification for "exemptions which act as restrictions in the tax base and which might create distortions", including social exemptions. These provide charities and other organisations with VAT relief on activities in areas such as health and education.
The document is part of a long-term European Commission plan to reform Europe’s VAT system. Its plan is to broaden the number of activities subject to VAT while reducing the rate. This would simplify the system for business but might increase costs for charities.
In the same document, the commission called on EU members to offer VAT rebates to not-for-profit organisations. "The commission calls on member states to make use of the existing options to alleviate the burden of VAT on non-profit making organisations," it says.
The CTG, which lobbies for a better deal on tax for UK charities, said in a statement that it was concerned that this was the only proposal for reducing the VAT burden on charities.
The statement said that if the social exemptions were withdrawn, replacement reliefs should be introduced or charities would see a huge increase in their tax bills.
"Although the EU communication recognises the strength of concern among charities and shows an increased awareness by the commission of the issues for the sector, there are no radical proposals on how to deal with the problem," the statement said.
The group has previously estimated that the exemptions are worth hundreds of millions of pounds to the sector.