VAT win could net £100m

Charities could share a VAT rebate of up to £100m if Oxfam succeeds in a legal bid to force HM Revenue & Customs to stand by a decision made in 2005 on reclaiming tax paid on fundraising activities.

Two years ago, the Children's Society won a case against HMRC that enabled it to recover a proportion of VAT incurred on fundraising costs for unrestricted income. Oxfam is now working with VAT claims expert Saffery Champness, which advised the Children's Society, on a follow-up case that would ensure HMRC adheres to the terms of the 2005 decision when calculating reclaims on overhead expenditure.

But Saffery Champness has warned that, if the case is won, charities will have to act quickly to make the most of the decision. The firm has advised that other charities with similar claims should approach HMRC as soon as possible, because there is a three-year limit on retrospective VAT claims.

"Charities would be prudent to protect their position by submitting voluntary disclosures to HMRC," said Russell Moore, charity VAT consultant at Saffery Champness. "This will make sure that any benefit arising from the Oxfam case is not diluted by the three-year cap on retrospective adjustments to VAT returns.

"We strongly recommend that charities contact their VAT advisers as soon as possible to maximise reclaim opportunities. Legal advice suggests we have a very strong case."

Moore added that charities should also consider working out what their VAT claims would be for the period before May 1997, when it was decided that claims should be capped at three years in arrears.

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