TaxPersonal TaxVAT hope smashed

VAT hope smashed

Economic secretary Hewitt pledges tax review announcement before the Budget but says European law has ruled out any chance of VAT extension in voluntary sector. Ben Griffiths reports.

The government has moved to dash hopes of extending VAT relief for the voluntary sector.

Pledging to publish its much-delayed consultation document on the charity taxation review no later than Budget day in March, economic secretary to the Treasury Patricia Hewitt told the Charity Tax Reform Group last week that ministers had already ruled out VAT relief for many charities.

Blaming European law – which states that VAT can only be recovered on goods and services bought for taxable purposes – Hewitt said: ‘We would therefore have to turn to a UK grant mechanism if we were to assist charities on this. You will know how difficult such a grant scheme would be when there are so many other pressures on government funding, and we have only a limited amount of money available.’

The government is extending the definition of charitable welfare services that are VAT-exempt to offer charities further support, Hewitt added.

But despite the promise of imminent publication of the long-awaited tax review, Hewitt’s speech did little to win support from the charity sector.

‘I don’t think this government understands charities any more than the last one did,’ said Adrian Randall, charities tax partner at Moores Rowland.

‘It does not look as though there is going to be anything of great importance to charities in the review. It looks like a lot of tinkering.’

Hewitt also launched Gift Aid 2000, a campaign to intended to raise public awareness of tax reliefs available under the Millennium Gift Aid scheme, announced by the chancellor in March 1998. The scheme is supported by a #4m advertising campaign.

Randall said the move contradicted Hewitt’s claim it was ‘not government’s job’ to fund or raise money for charities.

‘Charities would much rather have the #4m advertising cost paid back in VAT relief,’ he explained.

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