Charities that are VAT-registered in the UK are required to account for VAT on certain services received from non-UK suppliers. From 1 January 2010 this requirement has covered all services (other than VAT-exempt services) where the place of supply is determined by where the customer belongs. Hence, for example, a UK charity that is VAT-registered would need to account for VAT under the reverse charge if it received consultancy services from a supplier in the US.

The reverse charge can also result in an unregistered charity having an obligation to register for VAT because the value of supplies on which the reverse charge applies is taken into account when determining the liability to register. Hence, for example, a charity with taxable supplies of £60,000 in a twelve-month period which receives services to a value of £40,000 from an overseas supplier would be required to register for VAT because the combined total takes it over the current VAT registration threshold.

It should be noted that the changes effective from 1 January 2010 build on the decision in the case of Kollektivavtalsstiftelsen TRR Trygghetsrådet v Skatteverket [2009] EUECJ Case C-291/07 (“TRR”). Whereas the UK previously only required the reverse charge to apply when a service was received for a business purpose, VAT-registered charities are now required to apply the reverse charge irrespective of whether or not the service has been provided for a business or non-business purpose.

This means that, in order to raise the necessary self-supply invoice and pay the output tax to HMRC, charities need to have a system in place for identifying those invoices from overseas suppliers that do not show VAT and where the supply falls under the rules above. Recovery of all or part the VAT as input tax will depend on the use of the services.

Since 1 January 2011, most business to business supplies of cultural, artistic, sporting, scientific, educational, entertainment and similar services are also taxed where the customer belongs. However, supplies of admission to cultural, artistic, sporting, scientific, educational and entertainment events, and services ancillary to admissions (such as cloakrooms) remain taxable where the event takes place.

For further information see HMRC VAT Notice 741A: place of supply services.