The Church of England Children's Society has won its High Court appeal against HM Revenue & Customs (HMRC), meaning that now other charities could benefit by millions of pounds in recovered VAT.

The case was centred around on-street collections and whether expenses incurred related to fundraising alone - which falls outside the scope of VAT - or was part of the wider activities of the charity. HMRC said it was fundraising alone but the High Court did not agree.

The 29 July ruling accepted that the receipt of donations and other unrestricted funds was not an activity in its own right, but merely a mechanism for raising funds to support the charity's activities, allowing charities to partially reclaim VAT incurred in the recruitment of charitable donors.

Steve Hodgetts, VAT expert at accountants Baker Tilly, said other charities that undertake similar fund-raising activities need to consider if they can reclaim some of the VAT incurred. "Charities should act upon this quickly so that claims are submitted as soon as possible," he said. "VAT claims can only be made for the preceding three years, so the sooner a claim is made, the further back the claim can go."

According to the Charities Tax Reform Group, it is estimated that the voluntary sector pays over £500 million in VAT to suppliers that it cannot recover. But Russell Moore, VAT partner at accountancy Saffery Champness which acted as adviser to the Children's Society, thinks this could be much higher: "Although estimates have varied in the past, we believe that the actual amount of irrecoverable VAT suffered by the voluntary sector each year could be as much as £1bn, so [the 29 July] ruling is clearly very significant indeed."