Charities will have to spend at least £140m more a year on VAT after Chancellor George Osborne’s decision to increase it to 20 per cent from January, according to figures produced by the Charity Tax Group.
Helen Donoghue, director of the CTG, said the increase dwarfed any other news coming out of the Budget for charities.
"We understand this is an emergency Budget and everyone has to play their part," she said. "But the sector is going to be asked to do a lot more in the coming years, and it will have to do it with less."
She said that the CTG had asked the government to exempt charities from the increase in VAT, and would continue to lobby for that exemption until the tax came into force on 4 January.
Figures produced by the CTG show that charities will now face an annual irrecoverable VAT bill of at least £1.1bn and possibly as much as £1.5bn, with smaller charities paying about 4.4 per cent of their total income in irrecoverable VAT.
Stephen Bubb, chief executive of chief executives body Acevo, said: "At a time when the government wants more services to be delivered by third sector organisations and to encourage the growth of a big society, charities are being walloped with a big rise in VAT that puts them at a massive competitive disadvantage when bidding to deliver new services."
John Low, chief executive of the Charities Aid Foundation, said the move would have a severe impact on charities. "It is the smaller charities that are disproportionately affected because VAT accounts for more of their charitable expenditure than it does for larger charities," he said.
Martin Sime, chief executive of the Scottish Council for Voluntary Organisations, said the rise would hit voluntary sector organisations in Scotland hard, raising their VAT bill by £14m.