Charities could face paying a VAT rate higher than 17.5%, following a European Court of Justice ruling.

The case, relating to the Swedish Council for Redundancy Support and Advice, means that on cross-border transactions, charities will have to provide their VAT registration details to avoid paying the other member state’s rate of VAT.

The UK has one of the lower rates of VAT at 17.5%, but in Scandinavia rates applied can be up
to 25%.

According to Marc Welby, VAT partner at BDO Stoy Hayward, charities often pay for advertising campaigns across borders.

‘By and large, it will be the not-for-profit sector that will be affected by this. The only sector where VAT planning is going on is the charities sector,’ he said.

Welby said if the customer fails to provide their VAT registration number to the supplier in the member state they will subsequently be charged the supplying countries’ rate of VAT.

It is thought UK authorities will now be forced to alter UK VAT law, with charities that had planned to avoid VAT charges now unwinding offshore arrangements.

The decision is expected to be welcomed by professional service practitioners, including accountants, as it eliminates the need to consider whether a VAT-registered client is receiving the supply for business purposes.