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Charities 'losing millions in energy VAT'

Up to a third of UK charities are paying too much for their energy, unaware that they could qualify for a reduced VAT rate of five per cent, a business price comparison service has claimed.

With UK VAT set to jump to 20 per cent in the New Year, this could amount to potential rebates worth £100m, said the service, Make It Cheaper.

Jonathan Elliott, managing director of Make It Cheaper, said that the UK's 180,000 registered  charities will have made a collective VAT overpayment of £22.6 million on their electricity bills alone in 2010, plus a further £8.5 million on Climate Change Levy (CCL) payments from which they are also exempt. Charities that have been overpaying VAT and CCL can claim a rebate of up to three years, he added.

The exemption under the Finance Acts 1993 & 1997 applies to charities using energy 'otherwise than in the course or furtherance of a business,' he explained, noting that if at least 60 per cent of actual use is non-business, the organisation can receive all its power supplies at the reduced VAT rate.

However, a survey of 250 charities by Make It Cheaper showed that almost 30 per cent were unaware of the reduced VAT rate. Only by successfully applying for the VAT reduction can charities also be made exempt  from CCL, Mr Elliot added.

"There's £100 million up for grabs but if you don't ask, you don't get," he said. "Charities should check their bills for the VAT rate they're paying and, if it's wrong, get on to their supplier as a priority in the New Year. Even those that have been proactive in the past are often reverted back to the full rate by mistake."

One charity which has already benefitted from the reduced rate is the Regal Community Theatre in Bathgate, near Edinburgh. It recently received £11,000 after writing to its supplier to point out it had been paying the incorrect rates for gas and electricity.

"Because it was reclaimed, that is cash in our pocket now of £7,000 for the electricity and just about £5,000 for the gas," said Gillian Robertson, the theatre's financial administrator. "With all the cuts that are about to happen, this goes a long way towards keeping our doors open to the public."

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