The value of VAT reliefs for the charity sector – December 2020

Practice area: Finance | Public Policy
Client: Charity Tax Group
Published: 4 December, 2020
Keywords: quantitative analysis

London Economics was commissioned by the Charity Tax Group (CTG) to undertake research to quantify the value of existing VAT (value added tax) reliefs to charities in the UK and to model the potential impact of any changes to these reliefs. The key findings show that VAT continues to place a significant burden on UK charities, with irrecoverable VAT now costing charities £1.8bn a year. The research also highlights the importance of existing VAT reliefs and exemptions for the charity sector, against a backdrop of calls for a widening of the VAT base both in response to Brexit and to pay for the cost of the COVID-19 pandemic. Input VAT reliefs on purchases by charities are estimated to be worth £1.0 billion for the charity sector as a whole.

In addition to input VAT, the analysis estimates that VAT charged on supplies of goods and services by charities (output VAT) and collected by HMRC from charities amounts to £1.7 billion per year. Our best estimates are that significant amounts of this output VAT are absorbed by charities rather than being charged to their ‘customers’ and therefore is a burden on the charity sector. This study is the first of its kind to quantify output VAT relating to charity supplies, which adds to the overall complexity of charities’ interaction with the VAT system.

The report can be viewed here.