New VAT rules will mean charities pay more, says Charity Tax Group

Charities working overseas are among those predicted to be hit by new European regulations

The charity sector will face additional tax bills running to tens of millions of pounds when new VAT rules come into force next year, the Charity Tax Group has warned.

New European rules that will be introduced on 1 January mean charities will have to pay VAT in the country where a service originates.

The CTG has estimated that the change will cost the sector tens of millions of pounds and cause a heavy additional administrative burden.

John Hemming, tax accountant at the Wellcome Trust and vice-chair of the CTG, said he thought the regulations, known as the reverse charging rules, would cost his organisation £1.5m a year.

"Anyone who buys services abroad will be caught by this," he said. "Charities that hire overseas investment specialists or carry out a lot of work overseas will be the worst hit. We hire a lot of overseas investment experts, so we will feel it worse than most.

"It covers more organisations than you might think. Medical and care charities receive a lot of equipment from overseas. Anyone who receives a large donation from another country is likely to have to employ people in that country to handle it."

The increase in paperwork involved may prove to be more expensive than the VAT itself, Hemming warned.

"You will have to employ people to manually check invoices for their country of origin and work out their VAT status," he said. "It's difficult to automate, and it's not an intuitive process.

"I think many people are not prepared for how difficult it will be."

 

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