Government admits defeat on charity VAT ruling

The government has confirmed that it will not appeal against last month’s High Court ruling that the Children’s Society should be able to reclaim VAT on fundraising costs.

The decision by HM Revenue and Customs not to challenge the ruling will be followed by the end of next week with guidance explaining the implications of the ruling, and advice for charities wanting to make claims. No decision has yet been made on how far back to allow backdated claims.

The children’s charity estimated that it could save up to £500,000 pounds this year as a result of the ruling, but that savings to the voluntary sector as a whole could amount to tens of millions.

But a spokesperson for the National Council for Voluntary Organisations said the victory was only one step towards allowing charities to reclaim the estimated £400m they currently paid in VAT.

“This is something our members feel strongly about, and a real burden for charities,” she said. “We would hope for a wider ruling on the issue, covering the entire tax burden.”

Earlier this year, the NCVO called for an independent review of the impact and cost of the VAT burden on charities, adding that until that was carried out the government should make a series of targeted VAT exemptions in those areas where charities were hardest hit.