Charities could be set for a VAT windfall if Oxfam wins a High Court case against HM Revenue & Customs next month over VAT on payments to fundraisers.
The charity is arguing that a change should be made to the method used to calculate how much VAT it is owed as a result of a case won by the Children's Society in 2005.
The Children's Society case allowed charities to include VAT on payments to fundraisers in the total amount used to calculate how much VAT they could reclaim.
Oxfam, which hopes to win almost £3m from HMRC from the case, says the method used to calculate its VAT was not part of a binding contract with HMRC and should have been changed and applied retrospectively to 1997. It argues fundraising should never have been counted as a non-business expense in the method used by HMRC for calculating its total VAT bill.
HMRC has refused to accept Oxfam's method of calculating VAT and last year won a judgement from the VAT tribunal saying the charity's claim did not meet the requirements of the VAT Act.
Russell Moore, head of the charity VAT team at accountancy firm Saffery Champness, who is working with Oxfam on the case, said if Oxfam was successful it could pave the way for other charities to make backdated claims for VAT payments. "The potential value to the sector as a whole is tens of millions of pounds," he said.
He warned that, if the case was won, charities would have to act quickly to make the most of the decision. "Charities would be prudent to protect their position by submitting voluntary disclosures to HMRC," he said.