Charities could benefit by up to €40 million a year if they were able to claim back value added tax (VAT), an industry body has said, after Minister for Finance Michael Noonan announced a review of the issue.
The European Union’s VAT directive does not allow charities to claim back directly VAT incurred on goods and services. If a charity, for example, books a room for a fundraising event, it must pay the full VAT rate. Similarly, if it buys office equipment or employs a tradesman, it cannot claim any of the VAT paid.
Many charities say it is a significant burden, with St Vincent de Paul estimating it costs it around €3.5 million a year.
In his budget speech, Mr Noonan said he had asked his officials to look at how charities might claim back VAT.
The Minister's announcement follows publication of a working group report last year, which suggested that a VAT compensation scheme for charities, similar to one in Denmark, should be introduced.
In Denmark the total VAT compensation scheme is capped at €20 million to be shared proportionately by all charities. It can only be claimed on the percentage of privately raised funds rather than on government money.
The Minister's announcement has been welcomed by Charities Institute Ireland (CII), a new body which represents charities that raise funds publicly. It estimated that up to €40 million could be reclaimed by the sector if it was introduced.
CII spokesman John Gallagher said the issue of VAT had been a long-standing one. "It's not an overall panacea for the sector but a step in the right direction," he said.