Proposed VAT Cost Sharing Exemption

Centurion VAT Specialists Ltd

Centurion VAT Specialists

Proposed VAT Cost Sharing Exemption – Consultation on Draft Proposal Released
It seems a long time in coming since it was announced in the Autumn Statement 2011,  but Centurion now have sight of the Draft Proposals for the introduction of this new VAT exemption for qualifying recharges, between a shared service centre and its members, to benefit from a VAT exemption treatment rather than a taxable VAT treatment. Comments about “my horse could have had a foal in same time” from me are being ignored by the rest of the Centurion team!

The draft proposals are open for consultation until the 18th May and Centurion are happy to consolidate any comments from interested parties on the plans for implementation of this VAT exemption or if you’d like to discuss the proposals as the details of its working are becoming clearer (or less opaque!).

What is clear is that the intention is that exemption will only to apply to recharges for services from a shared services consortium that meets the criteria set out in the proposals. We are pleased to report that as a result of feedback from the consultation process there has been a widening of the definitions being applied which should allow more bodies particularly in the charity sector to benefit should a shared service consortium approach look like a valuable tool to have in the cost management tool kit.

The key issues to look at include:

  • HMRC’s definition of an “independent group of persons” for the Cost Sharing Group (CSG)
  • All CSG members must carry on exempt or non business activities
  • HMRC’s definition of “ directly necessary” supplies to members that qualify for the VAT exemption treatment
  • Direct re imbursement of costs condition to be applied by the CSG to its members
  • Distortion of competition condition that the CSG could be open to from commercial operators

It’s clear that these arrangements will not be the “silver bullet” that sectors such as charities, housing associations, universities across Wales might have initially hoped that it would be, but there is still enough of flexibility in the proposals to make this a serious option to consider where critical mass can be achieved to deliver volume savings: Areas such as maintenance services across the housing association sector perhaps? – and the cost sharing group doesn’t have to restrict itself to groups of entities from the same sector; local authorities could join with charities or with housing associations for a commonly incurred service cost as well.

The proposals can equally apply to the business sector, of course, but those businesses would have to have significant levels of exempt business activity to meet the qualifying conditions but in other European States businesses in the health and insurance markets do take advantage of the relief that the legislation brings to the burden of VAT on their costs so perhaps businesses in the property, exempt training sector, welfare, betting and gaming sectors should at least be aware of the potential this change could yield.

Any responses to this draft proposal will need to be back in with Policy Division in HMRC by the 18th May.

Centurion will be including the topic for our VAT Forum for FD’S in the Welsh Housing Association Sector, to be held on 15 May 2012 at ESIS Nantgarw, and at our Annual Forums for Welsh Universities and Further Education Colleges held in June.

If you’ve not had sight of the Draft Proposal from HMRC as it currently stands please call Liz Maher on 01633 415390, or send your comments to for inclusion in our response to the proposal by the 17th May 2012.

Personal Twitter: @Vatbat            Company Twitter:@centuriononvat

(C) Centurion VAT Specialists Ltd 2012

Centurion VAT Specialists

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