The groups are demanding the abolition of irrecoverable VAT, which it claims is costing the sector £500 million a year and is part of a complex and bureaucratic tax system for charities.

Nick Aldridge, director of strategy at Acevo, said: “Charities’ annual VAT bill of £500 million should no longer be diverted from charitable activity to the Exchequer. The present system is extremely complex and fundamentally unfair. It is in need of urgent reform.”

(see VAT petition story here).

Charity chief executive and finance directors are also asking the Treasury to review trading regulations and the Gift Aid system. They want to see charities being able to trade independently without the need to set up a subsidiary, and the small charities trading exemption to be raised from £50,000 to £250,000.

“Money is being leeched from charities to consultants and advisers to ensure proper compliance with legislation which is inconsistent, difficult for charities to get right and resource intensive,” said Ernese Skinner, CFDG’s policy and campaigns officer. “We want to see charities able to undertake all of their trading within the charity without the need for a separate trading subsidiary.”

CFDG and Acevo want to see all income donated to a charity automatically treated as a Gift Aid donation unless stated otherwise. “If the government is truly serious about getting people giving, then all donations should be Gift Aided to increase levels of take up and provide a not inconsiderable addition to the voluntary organisations’ income,” said Keith Hickey, chief executive of the CFDG.

Chancellor Gordon Brown will unveil the Budget on 21 March.