Charities should not expect any immediate changes to the VAT regime in the UK because it is likely to be a major issue in the negotiations to leave the European Union, the Financial Secretary to the Treasury has warned.
Some voluntary sector bodies have expressed hopes that the UK’s decision to leave the EU might lead to charities being granted a reduction in the rate of VAT they pay, which is controlled by EU rules.
Speaking at the Charity Tax Group’s annual tax conference today, Jane Ellison said that since the EU referendum other sectors had already made requests for changes to VAT that, if implemented, would cost the Treasury £31bn. At its current rate, VAT brings in £128bn.
Ellison said it was far too early to say what changes might be made to the VAT regime once the UK were to leave the EU, but the government was aware it was likely to be a major negotiating point during talks with the EU.
She said: "The future of VAT is only one of many complex issues that will be subject to negotiation with the EU commission and other member states, so we’re just not in a position to fix our plans on that now.
"We expect that the future of VAT is likely to be quite a big issue in the negotiations and, as we start that process, we go into it with no fixed expectations."
VAT rules are decided by the EU, and negotiations about the UK’s departure are expected to begin tomorrow when the government submits its notice to leave under article 50 of the Lisbon Treaty.
Ellison said that charities should do more to use existing tax exemptions, such as Gift Aid, and HM Revenue & Customs had commissioned research about how to make Gift Aid better understood and claimed correctly. The results of this research would be released in the next couple of months, she said.
But she warned that although the Treasury was keen to hear from charities and have a dialogue about changes that would help the sector, it would be dishonest to say that it could relieve every cost on charities.
She said: "I think we have a generous regime and we will always look to work with you on areas where we can help, but I think we have to be realistic that we aren’t going to be able to meet every challenge and relieve every cost."
Ellison reiterated previous statements that played down the possibility of exemptions for charities from the apprenticeship levy, which comes in next month, and rises in the rate of insurance premium tax, which increases to 12 per cent in June.
She said that increasing the rate of IPT was important for funding other areas of public spending and it would be "challenging" to have a lower rate for one specific sector.
On the apprenticeship levy, Ellison said that charities could benefit from younger people acquiring more skills.