Final Guidance On Shared Services VAT Exemptions

HMRC have published final guidance on how charities can use an exemption that allows them to share services without incurring VAT costs.

The exemption, which allows charities to set up a “cost-sharing group”, gained royal assent in the Finance Act in July and HMRC published final guidance on the measure last week.

Effectively, it allows charities to set up a separate company, jointly owned by all members, to deliver services to those members. It is intended to make it easier for charities to share services such as IT, payroll and HR without incurring extra VAT costs.

The VAT information sheet published by HMRC said: “The exemption applies when two or more organisations (whether businesses or otherwise) with exempt and/or non-business activities join together on a cooperative basis to form a separate, independent entity, a cost sharing group (CSG), to supply themselves with certain services at cost and exempt from VAT.

“As a result a “cooperative self-supply” arrangement … is created. The CSG is a separate taxable person from that of its members. It is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt if the relevant conditions are met.”

However, some organisations and groups have criticised the exemption for being too complicated and difficult to use.

In a joint statement from the National Council for Voluntary Organisations, the Charity Directors’ Group, Universities UK and the National Housing Federation published before the final guidance, the charities said:

“…the exemption is likely to be of little use to the charity sector, particularly for smaller organisations, who (sic) in many cases could benefit the most from cost sharing.”

As an accountant, Gill Freeman specialises within academy finances and charity tax.

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