John Hemming, Chairman at ECCVAT evaluates the European Commission's proposed reforms to charity VAT.
At EFA’s recent Skillshare event in Vienna, I identified the European Commission’s consultation on the future of VAT as a very important tax development that all fundraisers should be aware of. Since then, the European Commission has issued its response to the consultation; a communication which sets out the reforms it proposes to the VAT system.
Significantly for the charity sector, the communication acknowledges that VAT is a burden for charities. This follows an extensive campaign by ECCVAT and its European partners, including EFA, after the position of charities was ignored earlier in the consultation process.
The communication calls on Member States to make use of the existing options to alleviate the burden of VAT on non-profit making organisationsand explicitly suggests that the use of targeted refund schemes should be adopted by Member States as the most straightforward option for solving the VAT problems of charities. It is disappointing that no new solutions have been proposed given that Member States have been historically resistant to this idea, largely on cost grounds.
Paradoxically, at the same time as arguing that the sector has some protection from the existing social exemptions, the Commission is also looking seriously at the option of bringing everything within the VAT system and gradually withdrawing the exemptions.
Bringing charities within the tax system could present major difficulties for those people that charities are trying to help and support, who could not bear the additional VAT cost that they have to pay. Fundraisers would effectively be tasked to raise funds just to meet this shortfall. This option also further isolates those charities that do not charge for their services as there would be no mechanism for helping them with the burden of irrecoverable VAT.
ECCVAT and its partners are holding meetings with the European Commission to highlight the sector’s concern. We will continue to monitor the position very carefully and prepare for all eventualities. A key task will be to quantify the value of the exemptions and to estimate the costs of different types of reform to ensure charities are, as an absolute minimum, no worse off than they currently are.
The sector will need to be engaged at all stages in this vital process to ensure that all options to improve the VAT system for charities are explored thoroughly and a range of solutions introduced. ECCVAT and EFA will continue to represent the sector on this issue and would welcome support and involvement in this campaign from charities across the sector.