Charities are not prepared for the implications of new rules that mean they will have to pay VAT on services in the countries where the services originate, according to some tax experts.
The rules will be brought in by HM Revenue & Customs on 1 January in line with an agreement made between EU finance ministers in 2008.
Charities buying a service, such as IT support from Ireland, will have to pay VAT in the country where the service originates rather than where the purchasing organisation is based, as is currently the case. It is expected to cost charities millions of pounds and be a heavy administrative burden.
"Most charities are totally unaware of this headache," said Terry Dockley, VAT director at chartered accountancy firm James Cowper. "Even the finance directors of quite major organisations don't understand how it works and aren't prepared for it.
"In order to comply with these rules, staff will need significant amounts of training, because they will have to be able to identify whether a supplier is domestic or foreign. You could face a hefty VAT bill and penalties if you get it wrong."
Thomas Mobee, a senior VAT manager with charity accountancy specialist Saffery Champness, said the problem could be worse for charities because of their complex VAT status. "Apportioning this VAT between business and non-business expenditure could cause difficulties," he said. "And charities that are not registered for VAT could be pushed over the threshold by the new rules."
Helen Donoghue, director of the Charity Tax Group, said: "We think this has slipped under the radar: many organisations haven't understood it."