The value of a donation to charity by text message is to go up by 15 per cent as a result of a decision by the Mobile Data Association to stop deducting VAT from part of the donation.
The industry association for mobile data industries has been working on the move for more than a year under sustained lobbying from a coalition of sector organisations. The Treasury has confirmed charities should not be paying VAT on text donations (12 March 2008, page 1).
Starting this week, a new system will allow registered charities to be allocated a five-digit short code beginning with '70'. When a donor uses it, the operators will be able to recognise the donation as charitable. They will still deduct their own charges and levy VAT on the charges, but VAT on the remaining amount will not be applied.
UK mobile network operators 3, Orange, Telefonica 02, T-Mobile and Vodafone have all pledged to implement the system. They will be responsible for ensuring charity users are legitimate by checking HM Revenue & Customs' charity search facility.
Martin Ballard, operations director of the MDA, said exact figures would differ depending on the network. One example, he said, might be that a donation of £1 would see 70.1p reach the charity in future instead of 61p.
Lindsay Boswell, chief executive of the Institute of Fundraising, welcomed the move but said the institute would continue to campaign for operators to charge a lower tariff for donations and increase the proportion of a text donation that reaches the charity.
Hannah Terrey, head of policy and public affairs at the Charities Aid Foundation, said: "It's great news that the mobile phone companies have been able to agree a way forward to end this illegal practice, which is unfair on donors and charities."
Joe Saxton, head of sector consultancy NfpSynergy and one of the campaign leaders, said: "This opens the gateway to vast new fundraising potential - charities could roll out the codes across marketing channels such as direct response TV advertising and poster campaigns. It may even prompt mobile phone companies to launch new projects - for example matching the value of each donation."