'Irrecoverable' VAT
The Review of Charities Taxation in 1999 looked carefully at the problem of irrecoverable VAT and concluded, for reasons of principle and affordability, that no changes could be made to the existing scheme. In response to representations during the cross cutting review we considered the issue afresh to determine whether the obstacles presented by irrecoverable VAT can be overcome. We have concluded that they cannot and therefore are unable to make any fundamental changes to the way in which the VAT system operates.
The Government believes, however, that more needs to be done to overcome obstacles to effective service delivery by the voluntary sector. That is why we are creating the new “futurebuilders” fund to help the sector in its public service work. The new fund will deliver a one-off investment of £125m over three years to modernise the sector for the long term and to increase the scope and scale of the sector’s involvement in service delivery.