Government considers removing VAT charge for shared charity services

Following pressure from Charity Tax Group, Treasury minister David Gauke tells Commons there might be a consultation paper soon

David Gauke, exchequer secretary to the Treasury, spoke at a Commons debate on VAT
David Gauke, exchequer secretary to the Treasury, spoke at a Commons debate on VAT

The government might publish a consultation paper on the tax treatment of charities that share back-office services within the next two months.

Charities that charge one another for a service, or create subsidiaries in order to share services, such as IT and HR, have to pay what the Charity Tax Group describes as an "artificial VAT charge".

The group has lobbied the government to enact an EU directive that would remove the charge, which does not apply to private or public sector organisations.

Earlier this week, David Gauke, exchequer secretary to the Treasury, told a Commons debate on VAT and hospices that the EU exemption was being explored as part of government plans "to examine ways of ensuring that VAT does not act as a barrier to the reform of public services".

Gauke, the Conservative MP for South West Hertfordshire, said: "I can tell the house that one of the options under consideration is to issue a consultation paper on the subject within the next two months, and we are exploring that possibility closely."

Bob Russell, the Liberal Democrat MP for Colchester, said more care services were likely to be transferred to hospices as public services were reformed, but the fact that there was not a level playing field on VAT could act as a deterrent.

"I look to the coalition government to take urgent action to provide the necessary means to ensure the VAT currently paid is refunded so that the money can be spent for the purposes for which it is raised or donated – the treatment of patients," Russell said.

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