Charities reeling as VAT concession is cut

The taxman is set to come under intense pressure from charity groups
following the removal of a VAT concession, which tax advisers predict will have
a ‘devastating’ impact on the sector.

A body representing the finance directors of leading charities has already
declared its intention to lobby for the reinstatement of the concession.

Currently charities pay no VAT on the acquisition or construction of a new
building if it is 90% used for charitable purposes.

HMRC is saying from 1 January 2010, that will rise to 95%, potentially ruling
out large numbers of charities from the VAT saving.

Experts complained that the change has come with no warning and with no
consultation. Charity staff warned of the cost implications for the
not-for-profit sector.

Keith Hickey, chief executive of the Charity Finance Director’s Group, said
charities have reason to be concerned, and that his organisation would lobby the
government to reverse the change. ‘The situation will now only become worse.
We’re confused as to why HMRC should have changed their interpretation of
‘solely’ charitable use from 90% to 95%,’ he said.

‘This action does not suggest a government that is putting charities at the
heart of its thinking. Given the complete lack of consultation and the speed
with which this change was introduced, we have to believe that this will be a
significant cost to the sector,’ Hickey added.

Steve Hodgetts, VAT partner at Baker Tilly, said last week’s announcement was
the first the profession knew of the plan and comes at a time when charities are
already struggling with low rates of donations.

‘It was a big surprise in the current climate for HMRC to take this
concession away. It will have a huge impact on charities and further education
providers,’ he said.

Hodgetts estimates the move will cost hundreds of thousands of pounds in
additional VAT to Baker Tilly clients alone.

Kevin Barnes, director of finance at BarnardoÕs, said the policy change will
inevitably have widespread financial implications for charity org-

anisations and describes it as a ’cause for concern’.

Marc Welby, VAT partner at BDO Stoy Hayward, said he is surprised there was
no formal consultation on the change, particularly as ‘there will inevitably be
some casualties.’

According to a spokesman for HMRC, the concession was specifically reviewed
by the department in 2007 and he conceded no formal consultation was entered
into with the charity sector.

The spokesman said HMRC doesn’t anticipate any tax to be generated from the
removal of the concession, and expects most – if not all, charities who
previously qualified for the 0% rate, to continue to benefit under the revised
rules.

Further Reading:

Charity
tax research called into question