VAT Exemption for Charities that Share Back Office Functions.

In its recent budget release the Government pledged to carry out a formal consultation this Autumn into the provision of a VAT exemption for charities that share back office functions.

At present, when charities set up a joint venture arrangement to provide services such as finance, HR or IT they often incur irrecoverable VAT and this makes the arrangement un-economical.

For example, it is common for one organisation to incur the staff and administration costs.  It then recharges a share of these costs to other charities.  Following existing procedures, these charges would be liable to standard-rate VAT.  This could result in an irrecoverable cost to the recipients of the charges.

If the Government was to introduce a cost sharing exemption the recharges should be exempt from VAT.

 

If the Government was to introduce a cost sharing exemption (in line with EU law), the recharges should be exempt from VAT.  This would remove the need for some charities to register for VAT, the need to account for VAT on the recharges and most importantly the threat of irrecoverable VAT.

Although this would be good news for charities that receive services under a ‘shared arrangement’, it could result in the charity providing the services being partially exempt and incurring additional costs.

There is still a great deal of uncertainty on how and when the exemption will be implemented.  We will continue to monitor the consultation and will update you in due course.

 

 

If you would like more information on this please contact our VAT partner Scott Craig in the first instance. Please feel free to contact the Scott Moncrieff VAT Team if you would like to discuss this or any other VAT issues:

Edinburgh
Scott Craig: scott.craig@scott-moncrieff.com
Alan Glen: alan.glen@scott-moncrieff.com
Iain Masterton: iain.masterton@scott-moncrieff.com
Tel: 0131 473 3500

Glasgow
Greg McNally: greg.mcnally@scott-moncrieff.com
Anthony Cochrane: anthony.cochrane@scott-moncrieff.com
Tel: 0141 567 4500