VAT abolished on text donations

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Donations to UK charities sent via text message will be free of VAT from this week as part of an agreement with the major mobile phone operators.

Under the framework set up by the Mobile Data Association (MDA), gifts made to a dedicated short code will have the VAT waived.

It means charities of all sizes will be able to receive an estimated 10p in the £1 extra for text gifts of up to £10.

In the past this has only happened for large events, such as Comic Relief.

Martin Ballard, director of MDA - a not-for-profit mobile trade association - called the agreement a "landmark move" for the mobile phone industry.

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 Joe Saxton, former chair at the Institute of Fundraising

"Sending an SMS message is known to have mass appeal because of the simple user experience across devices," he said.

"Our hope is that reducing consumer barriers will benefit a range of charities in need of a new, modern and instant fundraising channel," he added.

With about 1.5 billion text messages sent in the UK every week, text donations are one of the fastest-growing fund-raising routes.

But VAT charges have historically put off some potential donors.

How it works

Charities eligible under the rules of HMRC need to be allocated a dedicated numeric short code for donations only.

This will be set up by a mobile service provider otherwise known as an aggregator.

Any five-digit SMS text message short code beginning with the number 70 is now automatically considered a charity code.

The framework has been approved by the UK's mobile network operators, 3, Orange, T-Mobile, Telefónica O2 and Vodafone.

It enables VAT usually charged by mobile network operators on the donation to be passed directly to the charitable organisation.

But the service operated by the mobile phone companies will still be operated on a commercial basis and as such will incur charges.

Not free

Campaigners for the change called it a "giant step forward" but pushed the industry to go further and lower their own charges.

Joe Saxton, former chair at the Institute of Fundraising, predicts that text donations could reach £100m in five years time if charges came down to between 5p to 10p per text in total.

"WIN, one of the companies that processes texts for mobile phone operators has agreed to process text donations for free," he said.

"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."