Finance News: Charity VAT reliefs 'go begging'

Charities are not taking advantage of more than 100 different VAT reliefs that could make a big difference to their finances, according to a charity accountancy firm.

"Organisations that otherwise spend a lot of their time desperately searching for ways to save money are not taking advantage of more than 100 exemptions," said James Tarleton, senior consultant at charity accountancy firm Ashdown Hurrey Group.

"It's an extremely complex area, for sure, but the voluntary sector needs to equip itself with the right information to make sure it is taking advantage of the tax breaks that exist to help them."

Many organisations still don't realise that their charitable status means they can qualify for a reduced VAT rate on heating and power. Most energy providers charge companies 17.5 per cent VAT, but charities are eligible for a reduced rate of 5 per cent VAT on all heating costs.

Another tax break that is currently under-used by the voluntary sector is the zero VAT rating on any advertising a charity carries out, whether it is recruiting for a new member of staff or promoting a campaign or event, and on costs incurred in printing any written materials.

"Charities generally are not business-minded and don't prioritise investing in areas such as tax mitigation," said Tarleton. "Many smaller organisations focus on fundraising and cutting costs, but charities have an obligation to their donors and beneficiaries to make sure they're managing their taxes at all times."

Tarleton added that even for small and emerging voluntary organisations, unclaimed tax exemptions can run into thousands of pounds.

VAT has been a thorn in the side of the voluntary sector. The VAT burden carried by the sector is estimated at anywhere between £400m and £1bn a year.

The Charities Tax Reform Group (CTRG), a collection of charities lobbying for clearer tax requirements for charities, has already been asked by the Government to come up with proposals for making VAT simpler for charities and reducing their compliance costs.

This year, Customs & Excise revamped its information booklet for charities and involved the CTRG in making its literature more accessible to voluntary organisations, a move hailed as a step in the right direction by the group.

Nick Kavanagh, the group's chairman and finance director at Save the Children, said VAT was a "nightmare" for charities. "Small charities won't have people who know about VAT working for them, and professional advice can be very costly," he said.

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