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.”