Charities could be saved from a multi-million pound tax increase following a climb-down by the Department of Trade and Industry (DTI).
The DTI has agreed to grant an 18-month moratorium to charities over the introduction of VAT rules, which force employers to pay tax on the wages of temporary staff as well as the commission fees of employment agencies.
The reprieve could be extended indefinitely.
Charities, which currently only pay VAT on commission, had resigned themselves to the tax increase that, according to the Charity Finance Directors' Group (CFDG), would have cost the sector millions of extra pounds a year.
But following a lobbying effort by CFDG, the DTI has granted an 18-month stay of execution and could exempt charities altogether. The move is expected to be confirmed in writing this week by Customs & Excise.
The DTI originally claimed that the impact of the changes on charities were "likely to be negligible" as they rarely used agency temps. But a CFDG member survey in October showed that many charities do use temps, regularly, because of staff shortages.
The CFDG is to request a meeting with the Government's Better Regulation Task Force to discuss regulatory impact assessments, and to analyse how proposed legislation will impact upon different parts of the economy, including charities.
"We had a major concern with the DTI regulatory impact assessment where it was suggested that the charity sector uses only 2,000 agency temps.
This was based on old and inaccurate information and, as a result, the DTI came to incorrect conclusions about the impact of the new regulation on the sector," said David Sinclair, policy officer at CFDG.
The umbrella body is to ask its members to suggest which regulatory impact assessments deserve review. "We have long been concerned that although assessments are supposed to take into account the impact of regulations on charities and the voluntary sector, they are often produced with little thought about the real impact of new legislation," said Sinclair.