Many large charities could be forgoing £50,000 annually because they don't recover VAT on expenses such as hotel and restaurant bills and mileage, said chartered accountancy firm Saffery Champness.
The oversight has come to light following a European Court of Justice ruling on VAT levied on employee mileage claims.
The court decided that the UK Government's policy of allowing VAT-registered organisations to recover VAT on mileage claims by their staff was against European law. As a result, UK VAT legislation is likely to change.
"When we contacted our clients to warn them of the potential change in the rules, we were surprised to learn that many charities do not recover the VAT they incur on employee expense claims," said Russell Moore, charity VAT partner at Saffery Champness.
According to Moore, charities say it is an administrative headache to collate the information needed to calculate the VAT they are owed. But he says many are not aware of the amounts they are writing off - the expenses of volunteers can be submitted and claims can go back three years.
"It is difficult to estimate, but I would say that charities could be losing out on anything up to a couple of million pounds per annum in total," he said.
He added that charities with local branches were particularly lax at submitting claims because the branches do not pass on information to head office. But he urged charities to take action before any restriction on mileage claims is introduced. "Due to the increase in the cost of petrol in recent years, recovering VAT on mileage may be more significant than it has been historically," he said.
Under European law, the UK must comply with the European Court of Justice ruling, which is intended to enforce harmonisation of tax law across the EU. But claims on other expenses, such as hotels and restaurant bills, will not be affected.
Large charities may be forgoing £50,000 annually because they do not recover VAT on expenses
Charities claim it is an administrative headache to collate the information necessary to calculate the VAT they are owed
They are being urged to take action before any restriction on mileage claims is introduced.