The hospice normally pays an annual VAT bill of £70,000. However, following the building of an extension to the property, it now has to pay an additional £80,000 to the government.

The Welsh sector, lead by the Wales Council for Voluntary Action (WCVA), has announced it is to support the Charities Tax Reform Group’s (CTRG) calls for the government to introduce a grant matching scheme to compensate charities for irrecoverable VAT.

Graham Benfield, chief executive of WCVA, said: “Charities lose between £400m and £500m a year in irrecoverable VAT – money which should be spent on providing goods and services for vulnerable people – not helping government meets its budget deficit.

“The sector is clearly united in wanting to see VAT reform, particularly given the growing role of the sector in contributing to the delivery of public services. The sector cannot do this with one hand tied behind its back,” he added.

CTRG believes the grant matching scheme is the best option in what it has described as “a difficult year for the government to release resources”. The system would provide compensation for charities delivering public services, those working together to provide services, plus refunds for VAT spent on building, maintenance and fundraising costs.

It is calling for the support of all voluntary and community sector organisations by asking them to approach their MP to point out the difficulties they incur as a result of irrecoverable VAT.

For more information visit www.ctrg.org.uk or www.wcva.org.uk