HMRC opens consultation on the VAT cost-sharing exemption
July 2011
Many charities seek to gain efficiencies by sharing costs, but the current VAT system has not helped those who, by their very nature,make VAT exempt or non-business supplies. This anomaly is now being reviewed by HMRC
The VAT cost sharing exemption is a European law provision that allows businesses and organisations making VAT exempt and/or non business supplies to form groups to achieve cost savings and economies of scale. Once formed the groups are relieved of a VAT charge on their supplies if all the conditions of the exemption are met. This is currently not possible in the UK.
Following the statement in the March 2011 Budget, HMRC has now opened a consultation on 28 June 2011 to examine how this European VAT cost sharing exemption could be used by UK businesses and organisations and to explore a possible framework for its operation.
If implemented the exemption could remove the VAT charge preventing institutions such as charities and universities from gaining efficiencies by sharing costs with each other
Charity Tax Group (CTG) is considering how the proposals in the consultation will affect charities and is reviving its working group to consider these implications and to prepare a response to the consultation. CTG has also confirmed it will continue its dialogue with the HM Treasury and HMRC consultation team to ensure the interests of charities are taken seriously by the government.
In response to the launch of the consultation, John Hemming, CTG chairman said: “We have been urging the government to introduce this mandatory exemption for several years. The current VAT systems acts as a major disincentive to closer working and collaboration, something which the sector is keen to develop. This exemption will help remove one of the main barriers to effective collaborations”.
Richard Wild, drector of VAT at accountancy firm PKF, said: "The commencement of the cost-sharing consultation exercise is long overdue - the exemption could give many charities a much needed cash boost. At first glance, the proposals appear to be a very positive step towards implementing the exemption in the UK. Some other EU states that have put the exemption in place already have done so in a half-hearted way - restricting its benefits. So, it is particularly pleasing that the government seems to be taking note of such issues and is proposing to apply the UK exemption across all exempt and non-business sectors. The government also appears to be taking an inclusive and pragmatic view of the type of support services that should qualify for the exemption: hopefully this will make it easier for organisations to realise the VAT savings that the EU rules are intended to make available."
David Gaulke, exchequer secretary to the Treasury urges interested parties to respond to the consultation:
“We’d like the views of a wide range of businesses and organisations – particularly in the education and charity sectors – that have VAT exempt or non-business activities and want to set up cost sharing arrangements. This is a complex relief which could have far reaching impacts across a wide range of sectors and careful consideration of the consultation results will be required.”
The consultation document can be found here and closes on 30 September 2011.
The postal address and email address to which written responses can be submitted are as follows:
David Bond
HMRC
VAT Directorate Team
VAT Projects
3C/10
100 Parliament Street
London SW1A 2BQ
David Bond
HMRC
VAT Directorate Team
VAT Projects
3C/10
100 Parliament Street
London SW1A 2BQ
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