Charities should be exempt from all taxes unless parliament specifically legislates otherwise, John Hemming, chair of the Charity Tax Group, has told MPs and peers.
Speaking at a meeting of the All-Party Parliamentary Group on Charities and Volunteering yesterday, Hemming said that the current system was so focused on preventing tax avoidance that it led to unfair taxes on charities.
He suggested that automatically exempting charities from all taxes, unless parliament legislated to include charities in specific taxes, would prevent unfair taxes being levied on the sector, including irrevocable VAT.
Hemming said: "How about flipping the whole tax system on its head – giving charities total exemption and only tax by exception?
"If there is a source of income that the revenue or the government feels charities should pay tax on, then legislate specifically for that. But give charities the benefit of the doubt in the meantime that all income they receive is tax-exempt."
Hemming said that anti-tax-avoidance legislation, though generally a good thing, was affecting charities’ income. He called on the government to stop making charities "collateral damage" in the war against tax avoidance.
"We are not the end consumer," he said. "All charities provide a service to the community, either individually or in a broader sense. We do not do it for ourselves.
"We cannot be avoiding tax. We have no tax motive to do so. We have been told 'sorry, you are collateral damage in the war against avoidance'. That is not acceptable. Take away the artillery, bring out the snipers and take off the individuals that abuse the tax system."
Sir Nicholas Montagu, chair of the charity tax commission that was set up by the National Council for Voluntary Organisations at the end of last year, told the APPG that his commission would focus on making realistic proposals for reforming charity tax law.
"Government pronouncements about fiscal policy have rather lacked a long-term vision for the sector, and we hope that our work might help to inform such a vision," he said.
"At the same time, I'm very keen that we should approach it in a realistic way. We have to be sensible – we are looking for realistic evidence, not evidence that implies a sudden splurge in new public spending for the sector."
The commission, which will report its findings next year, will launch a 16-week consultation later this month and will also hold seven public meetings across the country to gather evidence before publishing its findings and recommendations, said Montagu, a former chair of the Inland Revenue, the predecessor of HM Revenue & Customs.
Montagu said that the commission’s focus would not be the "weeds and fine detail" of charity tax law, but would instead focus on the strategic position of charities, their place in society, what they are there for and the current tax reliefs for charities, the rationale for them and their effectiveness.
"I'm not approaching this as a tax specialist by any stretch of the imagination – simply as somebody with a high-level understanding of tax administration," Montagu said. "It is quite a good basis on which to start."