HMRC opens consultation on shared services VAT

Finance | Gareth Jones | 28 Jun 2011

HMRC has issued its long-awaited consultation on the European VAT cost sharing exemption, moving a step closer to tackling the tax disincentive towards charities sharing back office functions.

Speaking about the consultation, which closes on 30 September, exchequer secretary to the Treasury David Gauke said: “We’d like the views of a wide range of businesses and organisations – particularly those 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 government first promised to consult on shared services in the June 2010 emergency budget but has failed to deliver until now.

John Hemming, chair of the Charity Tax Group, said the campaigning body had been pushing on this issue for several years, and highlighted that the exemption is mandatory under EU law.

“The current VAT system 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”.

Wider scope

Keith Lawson, senior manager at PwC, had previously voiced concerns that HMRC appeared to be planning to implement the exemption in a limited manner, thereby preventing charities from benefiting, but said his fears had been allayed by the consultation.

"Those organisations which attended PwC-led seminars in February 2011 will recall the discussions with HMRC and will not be surprised at the questions raised by HMRC.

“However, it appears from the consultation document that HMRC has taken note of some of the important points raised during those seminars, in particular with regard to which services would be regarded as “directly necessary”, and “negligible” taxable activity.

“HMRC may be open to a wider scope of exemption than perhaps we had expected which could be good news for the charity sector."

Directory: Charity Tax Group | HM Revenue & Customs (HMRC)

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