Four of the sector’s biggest umbrella bodies have clubbed together to tell HMRC that the proposed VAT cost-sharing exemption will be of no use to charities if implemented as its stands.

NCVO, CFDG, Universities UK and the National Housing Federation have all responded to the government’s consultation on the draft exemption, which closes today, to warn that it will not have the intended benefits for charities unless it is redrafted.

The sector has been lobbying for some time for the cost-sharing exemption which is mandatory under European law, to be implemented by HMRC.  Charities claim that they are currently dissuaded from sharing back-office services by the high costs associated with paying VAT.

However, initial hopes that the situation might be rectified were dashed when HMRC published the draft exemption. As it stands, in order to qualify for any exemption that is introduced, services provided by a cost-sharing group of charities must be “directly necessary” and most back-office services such as payroll, finance and IT, will not meet this definition.

In a joint statement, the representative bodies said: “In its proposed form the exemption is likely to be of little use to the charity sector, particularly smaller organisations who in many cases could benefit the most from cost-sharing.”

Caron Bradshaw (pictured), chief executive of CFDG, added: “While it is no panacea, the exemption is an important part of the solution. We fear that as it currently stands the exemption will do little to address the problem and an important opportunity will be missed.”