Finance News: Tax group hails Band Aid refund

The Charities' Tax Reform Group (CTRG) has hailed the Chancellor's decision to refund the Band Aid Trust for VAT incurred on its re-release of Do they know it's Christmas as a "chink of light" in the sector's own tax battle with the Government.

Bob Geldof last week welcomed Gordon Brown's promise to pay back the VAT on the trust's DVD and CD as a "remarkable gesture".

It could net Band Aid an extra £4m if the DVD sells 500,000 copies and the CD 1 million.

The tax reform group said it wanted the Chancellor to "convert this one-off gesture into a universal measure applicable to all UK registered charities".

Nick Kavanagh, chairman of the group and finance director of Save the Children, commented: "This is a recognition by the Chancellor of the financial and compliance burden that VAT causes charities and the huge disincentive to the public. People, understandably, hate the idea that their money goes not to the charity but to the Exchequer. That is why the CTRG has made VAT reform a priority. We hope this signals that the Government is looking hard at helping charities through a more generous approach to VAT."

Charities have long complained about the unfairness of their irrecoverable VAT burden, which has been estimated at anywhere between £400m and £1bn a year. But the Treasury has thus far been unmoved on the subject.

However, Kavanagh said the move by the Chancellor offered hope. "It might not be the opening of the door on VAT, but there may be a chink of light," he added.

The CTRG has already been asked by the Government to come up with proposals on making VAT simpler for charities and reducing their compliance costs.

Mike Parkinson, policy adviser at Oxfam, said that next year the CTRG would lobby on the issue of the impact of irrecoverable VAT on fundraising.

"When charities buy in services to support fundraising - such as design work or marketing advice - they incur a VAT bill and because they don't go on to make VAT on supply, they end up footing the costs," he said.

He described the problem as "the shoe pinching the foot" of charities: "The more we invest in fundraising, the greater the VAT bill."

Announcing his concession to Band Aid, the Chancellor said: "I want to do everything I can to support their work so people can buy the CD and DVD this Christmas knowing that all the money they spend will go to support the Band Aid Trust."

After fierce lobbying by Band Aid organisers in 1984, the Conservative government caved in and made a similar concession for the original Band Aid record.

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