Exchequer secretary to the Treasury David Gauke has announced thatthe government is considering opening a consultation, within the next two months, on the tax treatment of charities that share back-office services.

Gauke said in a parliamentary debate on VAT and hospices that an EU exemption was being explored as part of government plans "to examine ways of ensuring that VAT does not act as a barrier to the reform of public services".

In the debate, Gauke also suggested ways to mitigate the impact of VAT within the existing tax regime:

“Where local authorities and other public bodies enter into contractual rather than funding arrangements with charitable providers, it can greatly lessen any irrecoverable VAT incurred by those providers in many cases,” he said.

A Charity Tax Group (CTG) spokesman said: "CTG has been working on this issue for many years. The cost-sharing exemption could be very beneficial to particular charities that are currently restricted from sharing services because of existing VAT barriers. We will continue to work with the government’s consultation team and push for a swift implementation of this mandatory exemption."