Compensate charities for VAT rise

Charities are increasingly providing mainstream services but the VAT rise will make it more difficult to help the most vulnerable

David Cameron says he wants charities to play a part in the Big Society, providing services to those who need them. But the reality is that the coalition government's VAT hike will hit charities especially hard. It will make it more difficult for them to help some of Britain's most vulnerable people.

VAT is an indiscriminate tax: for the most part, you pay it regardless of your income and what you do. So a charity such as Chariotts in my own constituency of Wrexham – providing transport to disabled people – is required to pay VAT as much as a commercial operator. Chariotts is so successful that it will exceed the VAT registration threshold shortly. This will mean its passengers will have to pay VAT to travel with them and find 2.5% extra for their fare. All of this money will go from the pockets of disabled people to the government.

The limited exemptions for VAT actually make the position worse for charities than for most businesses. The Nightingale House Hospice in Wrexham, like all hospices, does not charge VAT. It cannot, therefore, set off VAT claimed from patients, but is not exempt from paying VAT on goods the hospice buys. The result is that charities pay more VAT to the government. John Savage, Nightingale House's chief executive, calculates that the extra cost of VAT for the hospice will be £4,000 next year.

This problem of "irrecoverable VAT" has been a running sore for charities for many years. It is made worse by local authorities being granted a special exemption to solve the problem – something charities think is especially unfair in a sector where they provide more and more mainstream services.

So will the government go ahead and implement the increase without assessing its impact on charities? Labour will fight the VAT increase every step of the way and give those Liberal Democrats who have campaigned on the issue previously the chance to tell us where they stand in a vote in the Commons this week. If the Big Society is anything more than a soundbite, then the government will compensate charities for a VAT rise that makes it much more difficult for them to do what they can for those who need their help.

The Guardian

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