VAT restriction prevents sharing, say charities

Charity Tax Group lobbies for combined 'back-office' resources

The Charity Tax Group is lobbying the Government to remove a VAT charge that it says prevents charities from cutting costs by sharing back-office functions.

Sharing finance, IT and human resources staff could help sector organisations reduce their spending, but the CTG believes that an "artificial" VAT charge makes this too costly.

The Government's third sector action plan, launched last month, also urged charities to enhance efficiency through collaboration and set up a £16.5m modernisation fund to help them.

Sharing arrangements typically require a lead charity or services company to be set up. This charges charities for its services - and is required to add VAT.

Helen Donoghue, director of the CTG, said it was lobbying the Government to adopt an EU directive that she said would allow inter-charity charges to be made without VAT.

"The charge creates an artificial VAT hit," she said. "This is a real obstacle to charities being more efficient.

"In the current climate, many charities are looking for ways to keep their overheads down. Sharing back-office functions could be a very effective way to do so."

A spokesman for HM Revenue & Customs said: "We have considered a number of cases in which it has been claimed that the VAT exemption provided in EU law should apply to charities wishing to share certain services.

"In each case, exemption was already available under other provisions in UK law, or the transactions did not meet the conditions."

Charles Nall, corporate services director at the Children's Society, which has a stake in IT-sharing venture Charityshare, said it was already possible for charities to avoid the VAT charge when sharing functions.

He said that Charityshare was treated as a separate body for VAT purposes because it was a joint venture between the three stakeholders - his charity, the NSPCC and the Alzheimer's Society.

But Donoghue said setting up such systems to avoid the VAT charge was costly and complicated, and many charities lacked the resources to do so.

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