Many charities seek to gain efficiencies by sharing costs, but the current VAT system has not helped those who make VAT exempt or non-business supplies. This anomaly is now finally being reviewed by HMRC.
The VAT cost sharing exemption is a European law provision that allows businesses and organisations making VAT exempt and/or non business supplies to form groups to achieve cost savings and economies of scale. Once formed the groups are relieved of a VAT charge on their supplies if all the conditions of the exemption are met. This is currently not possible in the UK.
Following earlier statements in the 2011 Budget, HMRC has now opened a consultation on 28 June 2011 to examine how this European VAT cost sharing exemption could be used by UK businesses and organisations and to explore a possible framework for its operation.
If implemented the exemption could remove the VAT charge preventing institutions such as charities and universities from gaining efficiencies by sharing costs with each other.
The Consultation document can be found at: VAT cost-sharing document
