Cost Sharing Exemption Consultation

VAT has a tendency to be constantly evolving and this year is no exception.

One significant development is the consultation document for the potential Cost Sharing Exemption. This looks to ease the VAT disincentive which occurs when charities, others involved in non business activities or exempt businesses work together to develop central infrastructure needs such, as payroll services or buildings management services. Currently cross charges between such separate legal entities will invariably attract VAT which creates issues both in terms of VAT registration and, of course, increased irrecoverable VAT costs for the recipient of the charge.

There has been a fair amount of lobbying for the UK government to implement the existing EU Directive which allows a VAT exemption treatment on such cross charges in the appropriate circumstances and at the end of June a Consultation paper finally emerged.

Affected sectors and interested parties are being encouraged to feedback on the planned structure to secure an exemption and define the necessary interpretation of how such an exemption can apply.

We at Centurion will be facilitating three events in South Wales and Bristol in September which will be attended by HMRC & Treasury Policy representatives to allow our clients and contacts in key sectors affected by the proposal to feedback directly to the centre. We are co-ordinating events with the Welsh Council for Voluntary Action for the charity sector, Community Housing Cymru for the housing association sector and the Association of Colleges South West for our further education sector.

The consultation period ends on the 30th Sept 2011 and the earliest we can expect legislation will be at the Royal Assent of the Finance Bill next year that is assuming that there is a smooth passage. Other member states are facing challenges about the ways in which they have interpreted the exemption. However, speaking to the HMRC policy team it would appear that the UK is hopeful that their planned implementation will sit comfortably within the EU intention for the exemption and its use.