HM Revenue & Customs reviews overseas VAT charges

Charities hopeful that they will be awarded an exemption

Charities might escape new rules that require organisations to pay VAT on services procured abroad after HM Revenue & Customs told tax experts it would review how it applies the tax.

Reverse charge rules, introduced on 1 January, mean that charities buying a service from abroad, such as IT support from France or investment advice from Ireland, are responsible for paying VAT in the UK. It was previously the supplier's responsibility.

However, several tax experts wrote to HMRC suggesting the rules should not apply to non-business activities such as those carried out by many charities, and have been told there will be an internal review of the decision.

"This rule has been interpreted differently elsewhere in Europe," said Rob Warne, a VAT specialist at accountants Horwath Clark Whitehill.

"In Germany, for example, they see the distinction as between business activities and other activities. This means non-business activities are treated like private activities and should not come under the new rules.

"However, HMRC has said the rule applies to everyone who is registered for VAT."

Many organisations were considering whether to ditch suppliers based abroad to avoid the charge, he added.

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