The government has been urged to exempt charities from VAT as a way of helping them cope with the tough financial circumstances.

The call came from Jasmine Whitbread, the chief executive of Save the Children.

Ms Whitbread said that many charities are having to deal with a drop in donations, especially from corporate donors, while simultaneously facing extra demands on their services.

Charities could, however, benefit from up to £500 million a year if the government were to exempt them from VAT.

Additional income could be generated by also amending the rules on gift aid, asking donors to opt out of the scheme rather than opt in.

In a radio interview, Ms Whitbread said: “Income is down already and, more importantly, we can see that it is going to be down for all charities next year and possibly longer. So we are going to have to plan on less money just at the time when people are asking for more support from charities.

“What we are seeing on the corporate side is that where we have existing relationships, these are holding good – maybe the amount of money coming through is going to be down a little bit, but services in kind and volunteering from existing partners is good. What is going to be difficult is that corporates are not going out looking for new partnerships. That will affect charities.”

News update from London accountants Carter Backer Winter (CBW)