Charities in the United Kingdom are urging the government to bring about changes to tax laws to provide them with a much-needed cash boost as demand for their services grows amid the economic downturn.
Jasmine Whitbread, head of Save the Children, told BBC Radio 4's Today programme that the government could give charities a GBP500m cash boost by exempting them from value-added tax.
"Charities have got together and gone to [the] government and we have been talking about what could be done. Charities are paying a lot of tax," Whitbread said.
"Five hundred million pounds could be released back to charities through exemption from VAT," she added.
Under current rules, UK registered charities aren’t automatically exempt from paying VAT, and if a charity's turnover from business supplies is above the VAT registration threshold (currently GBP67,000) it must register for VAT in the same way as any other business.
There are only a limited number of VAT reliefs on purchases available to charities, including those not registered for VAT. These include, among other things, advertising, building and construction, drugs and chemicals, energy saving materials, medical and scientific equipment, and rescue equipment. Charities can also receive supplies of fuel and power at the reduced rate of VAT where it is supplied for non-business activities, and, in certain circumstances, they claim relief from VAT on specific goods imported from outside the European Community.
Whitbread also argued that changing the Gift Aid scheme, which tops up certain charitable donations by 25%, to an opt-out system could release millions of pounds in extra cash for charities.
Gift Aid is a way for charities or Community Amateur Sports Clubs to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate tax paid by the donor, with the result that it can increase the value of donations by a quarter at no extra cost to the donor.
According to HM Revenue and Customs, Gift Aid is worth nearly GBP1bn a year to charities and their donors.
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