Guidance issued by HM Revenue and Customs on shared services exempt from VAT
HM Revenue and Customs has published final guidance on how charities can use an exemption that will allow them to share services without incurring VAT costs.
Charities are able to set-up a “cost-sharing group” which is, in effect, a separate company jointly owned by all members. The exemption gained royal assent in the Finance Act in July and is intended for charities to share services, without incurring any extra VAT costs.
The initiative has, however, been criticised by some who say that this exemption does not fully address the problem of VAT being a barrier to collaboration. The fact that a separate company will need to be set up in order to take advantage of the exemption is seen as complex and too restrictive, meaning that many will not take advantage of it.
Graham Elliott, a partner at the tax advisers Haysmacintyre, said "We’ve not yet seen the creation of any cost-sharing groups. Given the complexity of setting them up, however, it might be a while before one appears."