Press Releases
30 November 2011
Comments on the Government’s autumn announcement
UK finally catches up with Europe, allowing VAT exemption for cost sharing by not-for-profit organisations
- Boost for charities looking to reduce back office costs
George Osborne has just announced that not-for-profit organisations may now be exempt from VAT when using shared services.
Shared services are used by organisations to make savings by merging and sharing the costs of back office functions, such as HR or IT. However, the benefits for not-for-profit organisations, such as housing associations and charities, have been limited. Unlike local authorities, they were not able to reclaim VAT on fees for shared services.
Andy Dawbarn, VAT partner at Wilkins Kennedy, the UK’s Top 21 accountancy firm comments:
“This has been a long time coming and is great news for the not-for-profit sector, potentially generating up to £200 million over the next five years.”
“The VAT exemption could boost the use of shared services in the not-for-profit sector, allowing charities to cut their costs. With VAT at 20%, it made the use of shared back offices prohibitively expensive.”
“This VAT exemption has been a feature of EU legislation for a long time, but for whatever reason, successive UK Governments have delayed its implementation. In this respect, we’re finally catching up with other European countries.”
Wilkins Kennedy says that while the new provision will certainly benefit charities there will be a narrow set of circumstances where the exemptions will apply.
Andy Dawbarn says: “However, it should be noted that where those circumstances do apply, the exemption will facilitate efficiency savings for various organisations wishing to work together, not just charities. The exemption is designed for use by businesses and organisations unable to recover all of the VAT they incur on their purchases and the relevant groups will include Universities and Further Education Colleges, Housing Associations, Residential Care Homes as well as Banks and Insurance Companies.”
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