FINANCE NEWS: Split in Europe over VAT exemption proposal

Patrick McCurry

The possibility that UK charities could lose their exemption from payment of VAT - as proposed by the European Commission - appears to have been averted.

The removal of zero rating on VAT would have hit service-delivery charities and organisations that operate large chains of shops the hardest. The proposal was part of a wider VAT reform put forward by the EC.

According Helen Donoghue, executive secretary of the Charities' Tax Reform Group, the implementation of this proposal could have cost UK charities up to £1bn each year.

In recent weeks, the Council of Ministers, which represents member states of the European Union, has told the EC it does not agree with the VAT proposals as they stand.

In addition, the European Parliament has lent its backing to charities.

"The charity sector was the only sector that received a lot of support in the European Parliament debate on the VAT proposals," said Donoghue. She added that the CTRG had been lobbying member states, the EC and the Parliament on the threat posed to charities.

Although the European Parliament cannot veto EC proposals, Donoghue said its stance sent a strong political message to the EC about the need to protect charities in any VAT reform.

The CTRG will be meeting with EC representatives, she said, to discuss the next steps that need to be taken by the EC and how the original proposals should be revised.

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