Report urges VAT refunds to charities

Value added tax is imposing a "significant burden" on charities and creating a "real human cost", a report to be published today will say.

The report, commissioned by Irish Charities Tax Reform Group , is the first detailed survey of the VAT load borne by charities and was carried out by Ernst and Young.

The tax reform group is calling for changes to allow refunds on VAT to charities.

The 2001 accounts of 219 charities were examined by the report's authors. These were found to have paid out €18 million in VAT on a total expenditure of €500 million.

Less than €300 million of this was eligible for VAT refund.

"Since charities are generally not regarded as being 'in business', they are treated as 'exempt' from VAT," the authors say.

This means that as charities do not charge VAT on the services they provide, they cannot reclaim VAT they pay on such unavoidable costs as building and recruitment.

Taking the burden on one as an example, the authors point to Concern, whose VAT bill in 2002 came to €2 million.

The Irish Charities Tax Reform Group, which represents 126 charities, is working to increase funding to the sector through tax reform. It says the VAT burden could be relieved by way of a ministerial order without contravening European Union law.

Under the changes the group are seeking, VAT would continue to be charged to charities and relief would be granted, via various refunds.

This would ensure "that the benefit of the relief goes, in its entirety, to a specific charity or individual", the report says.

The actual cost to the Exchequer of introducing a refund mechanism would be 52 per cent of the total VAT bill, says the report.