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Charities get mobile phone VAT break

Charities are all set to benefit from a tax break on any donation made by text message.

An agreement reached with the major mobile phone operators means that the VAT normally chargeable on a message will be passed directly to the charity.

The agreement has been brokered by the Mobile Data Association (MDA), with mobile network operators 3, Orange, T-Mobile, O2 and Vodafone all signing up to the system.

As a result, charities should receive an extra 10p for every pound donated by text on gifts up to £10.

Martin Ballard, director of MDA, described the agreement as a landmark for the mobile phone industry.

Mr Ballard said: “Sending an SMS message is known to have mass appeal because of the simple user experience across devices. Our hope is that reducing consumer barriers will benefit a range of charities in need of a new, modern and instant fundraising channel.”

Text donations have become an increasingly popular method of making gifts to charitable organisations, but some people have been deterred by the VAT charge.

To make use of the system, charities registered with HM Revenue and Custom need a dedicated SMS short code for donations only. Five-digit SMS short codes beginning with 70 are considered charity codes.

Donors are being reminded, however, that any text message making a gift to a charity will still incur the usual costs of sending a SMS.

The Charities Aid Foundation applauded the agreement but urged phone operators to drop all charges when a donation is being given.

Until the agreement was reached, about 95p of every £1.50 donation found its way to the charity concerned once VAT and other charges had been accounted for. Now the charity can expect to receive £1.10 on the same value of donation.

It is estimated that text donations could hit a total value of £100 million within five years were the cost of the texts to come down to 5p or 10p.

Joe Saxton, former chairman of the Institute of Fundraising, said: “WIN, one of the companies that processes texts for mobile phone operators has agreed to process text donations for free.

“What we need now is for one of the socially aware mobile phone companies like Virgin or Vodafone to take the lead in lowering their charges.”