No 10 has denied that thousands of pounds will be lost from aid budgets after Gordon Brown pledged tax would be waived on a Haiti charity record.
The Independent reported that the Treasury would send the Department for International Development (DfID) a bill for the lost revenue.
But a Downing Street statement insisted: "The story is wrong."
It said DfID will reimburse the cost of the VAT, but would receive extra Treasury funding to cover this.
The statement added: "There will therefore be no impact at all on other areas of DfID's work or budget."
Everybody Hurts, recorded to help Haiti's earthquake victims, sold more than 453,000 copies in its first week to go straight to number one in February.
Proceeds for charity
The REM cover - organised by Simon Cowell - featured a host of stars including Leona Lewis, Cheryl Cole, Kylie Minogue, Robbie Williams and Take That.
Proceeds were split between the Disasters Emergency Committee (DEC) and The Sun newspaper's Helping Haiti campaign.
At the time, the prime minister announced that he had decided VAT would be waived on the single.
But the Independent reported that DfID had been told by the Treasury that the equivalent of the "lost" VAT would be deducted from its budget.
The paper said fears had been raised that record-buyers may have unwittingly reduced money from the government's aid budget for other countries.
However, Downing Street said: "DfID will reimburse the initial cost of the VAT for the single but has an agreement with HMT that they will provide additional end of year financing to cover that cost.
"There will therefore be no impact at all on other areas of DfID's work or budget."
The record notched up the biggest first week sales of any charity track this century, the Official UK Charts Company (OCC) has confirmed.