Communal leaders have warned that this week's rise in VAT will cost the Jewish charitable sector "hundreds of thousands of pounds".

At south London residential home Nightingale, executive director Leon Smith estimates the VAT increase from 17.5 per cent to 20 per cent will mean an extra £35,000 annual outlay.

"Most people don't realise charities have to pay VAT," he said. "They think we're exempt but it's not the case.

"Historically we would have had a VAT exemption for something like a lift because it's for disabled people but the Revenue has tightened its rules and said it can only be exempt if used solely for disabled people.

"The largest cost of running a home such as Nightingale is salaries, where there is no VAT issue. But we also need to buy an awful lot of stuff - towels, sheets, pillows, toilet paper, paint, equipment, maintenance contracts - and all of that is taxed.

"Add the £35,000 to the £250,000 we currently spend on irrecoverable tax and it's serious money. We're also being squeezed by local authorities, so it's a real double whammy."

Jewish Care chief executive Simon Morris said it would need to raise an extra £200,000 from the community to meet the higher VAT charge.

"This will bring the total cost of irrecoverable VAT to Jewish Care to £1.5 million in the coming year - money which would be so much better invested in developing our services."

Norwood corporate services' director Philip Bunt believes the charity's additional VAT cost will be £75,000 a year. "The increase is just one of a number of fiscal measures which will lead to an increase in operating costs."

The one per cent National Insurance increase taking effect in April would cost £225,000 annually and the changes in pension arrangements in 2012 an additional £200,000.

"These extra costs are particularly challenging in the light of an expected reduction in income of up to £4 million per year as a result of the government cuts in local authority funding.

"Norwood has initiated a programme of reducing its costs but will continue to rely on the generosity of the community to maintain the services which so many of the most vulnerable rely on."