Charities could be spared an estimated £20m a year in VAT as a result of a decision by a VAT tribunal on the hiring of temporary staff.
In the case of Reed Employment Ltd v Revenue & Customs, the tribunal ruled that employers hiring temporary workers should pay VAT only on commission, rather than on the whole of their wages.
Peter Ladanyi, a VAT consultant at the accountancy firm Chantrey Vellacott, said that if the judgement stood it would restore most of the value of a concession withdrawn in 2008, which exempted charities from VAT on temporary workers. The Charity Tax Group estimated the exemption was worth £20m a year.
The deadline for an appeal by HM Revenue & Customs has passed. But Ladanyi said HMRC might choose to take another case to the VAT tribunal, which could supersede the Reed judgement.
"It appears it isn’t sure itself what the law is," said Ladanyi. "I think there is a reasonable chance that HMRC would win this if it went back to the tribunal. But if this judgement stands, it’s worth many millions a year to the sector."
He said that charities would not be the only organisations to benefit from the judgement, but they would be among the biggest winners because they employ many temporary workers and are unable to reclaim VAT, unlike most employers.
An HMRC spokesman said: "HMRC is considering the effect of the recent judgment of the first tier tribunal and whether it has any wider implications."