Date05 Jul 2021
Despite successive governments promising to streamline, simplify and consolidate the tax system, tax reliefs appear to have been their only output. At present over 1,100 different reliefs are currently available, however the associated administration can result in additional unnecessary cost.
Charity tax reliefs are a good example of this. Charity relief rules are considered by many to be bureaucratic, inefficient, and expensive to operate. In view of the role charities play in modern society many feel that the Government should look at making improvements to the tax position for charities as a matter of priority. The VAT reliefs currently available to charities are too narrow. They should be extended and made more efficient. Some still involve paper-based administrative processes that often cost more money to manage than they save.
In many areas, the VAT rules that apply to charities are confusing and open to interpretational differences. This results in charities suffering unbudgeted VAT costs or significant costs to defend a position. In a number of cases the VAT rules do not reflect current government policy, or the range of activities charities undertake these days.
The majority of charities are unable to recover all of the VAT they incur. Charities must therefore use hard earned funding to fund VAT costs and in some cases even apply for Government funding to cover the cost of irrecoverable VAT which is duly repaid to HMRC. If the rules on the recovery of VAT were changed, 100% of donations given by the public and Government funding could be used for the purpose it was originally intended for.
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