VAT blow for charities with staff on joint contracts 2

Finance | Gareth Jones | 29 Nov 2010

Charities that have IT staff on joint contracts with an external supplier may have to pay more VAT following a recent VAT tribunal decision.

In CGI Group (Europe) Ltd v HMRC, the tribunal heard that CGI had outsourced its IT to a sister company but retained staff on joint employment contracts.

It ruled that the company was liable for VAT on payments made to the other company to pay the shared staff, rejecting the argument that the external provider directed the staff and had a contract with CGI to provide the services they provided.

Socrates Socratous, director of SOC VAT Consultants, said the arrangement was fairly common in the charity sector and that this ruling is not helpful.

“The tribunal reached the conclusion that the reality of the situation was that CGI had contracted to supply IT services so that the staff were working solely for this purpose.

“Any charity wishing to enter into such arrangements must ensure that that the substance of any arrangements are fully reflected in the contractual position.

He added: “It is not sufficient to introduce joint contracts of employment if the reality of the situation is that there is only one employer.”

Directory: SOC VAT Consultants
Who's Who: Socrates Socratous

Place a comment

Peter Millar
ViSTA
4 Dec 2010

What happened to the EU Cost Sharing Directive? Wasn't that supposed to save charities from this sort of thing and to encourage the sharing of back office services?

[Reply]

Socrates Socratous
Director
SOC VAT Consultants
18 Jan 2011
Response to [Peter Millar]

Unfortunately HMRC has been very slow in undertaking the consultation process that was promised in last years Budget. The reality is that we are unlikely to see any major changes in this area in the short term and hence charities should not rely on this process alone as the solution to irrecoverable VAT costs for shared services. Even if a cost sharing exemption is eventually introduced, there is no certainty at this stage on how it will be implemented or the circumstances when it will apply. HMRC are likely to try and keep its application to a minimum.

[Reply]

Comments

[Cancel] | Reply to:

Name *

Email *

Organisation

Job Title

Comments *

Verification *

* Please read our Community Standards

Close »

Community Standards

The civilsociety.co.uk community and comments board is intended as a platform for informed and civilised debate.

We hope to encourage a broad range of views, however, there are standards that we expect commentators to uphold. We reserve the right to delete or amend any comments that do not adhere to these standards.

We welcome:

Robust but respectful debate
Strongly held opinions
Intelligent relevant discussion
The sharing of relevant experiences
New participants

We will not publish:

Rude, threatening, offensive, obscene or abusive language, or links to such material
Links to commercial organisations or spam postings. The comments board is not an advertising platform
The posting of contact details for yourself or others
Comments intended for malicious purpose or mindless abuse
Comments purporting to be from another person or organisation under false pretences
Gratuitous criticism, commentary or self-promotion
Any material which breaches copyright or privacy laws, or could be considered libellous
The use of the comments board for the pursuit or extension of personal disputes

Be aware:

Views expressed on the comments board are left at users’ discretion and are in no way views held or supported by Civil Society Media
Comments left by others may not be accurate, do not rely on them as fact
You may be misunderstood - sarcasm and humour can easily be taken out of context, try to be clear

Please:

Enjoy the opportunity to express your opinion and respect the right of others to express theirs
Confine your remarks to issues rather than personalities

Together we can keep our community a polite, respectful and intelligent platform for discussion.