VAT import rules for charities seem unfair

10 November 2023

The new postponed import VAT accounting (‘PIVA’) rules were introduced when the UK left the EU’s VAT and customs system on 1 January 2021. PIVA allows an importer to account for import VAT due on goods arriving from EU or non-EU countries on submission of its VAT return, instead of paying the VAT to HMRC at the time the goods arrive in the UK. As a warmly welcomed measure, this provides an important reporting simplification and cashflow saving for many UK importers.

Any organisations that import goods for a wholly non-business purpose, for example charities and other non-profits, have been informed by HMRC they cannot use the new system as the import VAT is not a business input. However, if they do make a purchase for business purposes, they can use PIVA.

HMRC’s guidance has resulted in another layer of tax complexity for embattled charities and non-profit organisations who must now operate both the old system for their non-business purchases (i.e. pay the import VAT to HMRC immediately or use a duty deferment account) and the new PIVA system for their business purchases. HMRC’s communication of this requirement has also been low-key, with many charities mistakenly using PIVA for all their imports.

Recognising this strain, HMRC recently announced that local authorities in the UK, and other organisations that benefit from a similar government VAT refund scheme, will be permitted to use PIVA for all their imports, irrespective of whether those purchases are for business or non-business use.

RSM UK has asked HMRC to clarify why it can allow the use of PIVA for local government but leave charities and all other not-for-profits with the dual-reporting headache. HMRC has said it is reviewing the situation, but no easement has been forthcoming so far.

Having one (simpler) rule for public sector organisations and another (more complex) rule for everyone else seems unfair. We urge HMRC to urgently reconsider its position, to help ease the reporting burden for many charities and non-profit organisations.