Policy and Politics: Budget reaction - Mixed response to proposals on VAT

Mathew Little

Pre-election Budget leaves Charity Tax Reform Group unimpressed.

Chancellor of the Exchequer Gordon Brown's pre-election Budget saw a few concessions to the needs of charities, but the main tax issues for the sector were left unresolved.

The Charity Tax Reform Group said it was very disappointed with the "modest range of announcements for charities".

The pressure group said the Government had declined to take forward two VAT proposals it had been discussing with ministers for several months.

One was to provide tax reliefs on shared services, the other to allow more charities to benefit from reduced rates of VAT.

"These are not radical ideas, but sensible, thought-through proposals that would have brought positive assistance to the sector at little cost to the Government," said the group in a statement.

Brown did announce that a single unit for charity taxation and donations would be created within the Treasury as a result of the forthcoming merger between Customs & Excise and the Inland Revenue.

"Our ability to make progress on charity tax reform has been hampered by the lack of integrated policies between the two departments in the past," said Charity Tax Reform Group chairman Nick Kavanagh. "We hope this heralds a new, co-ordinated approach."

Brown also extended the VAT refund scheme for repairs to church buildings for another three years. The grant scheme provides 100 per cent reimbursement for the VAT cost of renovating religious buildings until 2008.

The Chancellor also decided to extend the range of the scheme to include the construction and repair of memorials.

Peter Ladanyi, head of VAT firm Chantrey Vellacott DFK, said: "This will be of enormous benefit to organisations throughout the country that raise funds to build and maintain public memorials.

"Let us hope this memorial refund scheme will be expanded to cover further charitable activities over the forthcoming years."

Brown instructed the Inland Revenue to work with the sector to permit joint ventures run by charities, such as shops, to transfer their profits to the parent charity using Gift Aid.

He also introduced a new, reduced rate of VAT for welfare charities that provide products or consultancy promoting the welfare of the elderly, disabled people and children.

VAT will now be charged at 5 per cent for those organisations, not the general rate of 17.5 per cent.

Last year, the NSPCC lost £37,000 in VAT on a net income of £213,000 gleaned from a child protection video and consultancy services.


- Single unit for charity taxation and donations within Treasury after merger of Customs & Excise and Inland Revenue

- VAT refund scheme for repairs to church buildings extended to 2008

- Range of scheme extended to include memorials

- Joint ventures run by charities can transfer profits to parent company using Gift Aid

- Reduced 5% VAT rate for certain welfare charities.

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