VAT bill harms charities

The huge increase, from £150,000 to an expected £500,000, will remove vital funds that would be spent on activities like campaigning for humans rights in crisis-hit areas of the world, such as Haiti.

Coleman said that the change of tack from Customs is a 'conscious effort to roll back agreements, which were all in writing. I don't know if the donors appreciate just how much of their money goes straight into the Exchequer. At the moment, my irrecoverable VAT is heading up to half a million pounds a year - and that's a major issue'.

Nick Kavanagh, chairman of the Charity Tax Reform Group and finance director of Save the Children, said charities often faced problems with their VAT status because of different interpretations of VAT legislation.

'It's always been a struggle to get a uniform ruling from VAT inspectors up and down the country,' said Kavanagh. 'It is a consistency problem with interpretation. We often come across problems that Customs has not been worried about before.'

The increased bill at Amnesty relates to an extra statutory concession on brochures sent to its subscribers, of which Amnesty has around 200,000. Coleman said irrecoverable VAT is one of the biggest problems Amnesty faces, and it would be a 'dream' if Gordon Brown were to introduce legislation to allow charities to recover their VAT in next month's Budget. The Charity Finance Directors Group claims that irrecoverable VAT costs the sector in excess of £400m a year.