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Draft Finance Bill 2012 - VAT no longer a barrier to cost sharing

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7 December 2011

HMRC yesterday released details of the cost sharing exemption, which will come into force from Royal Assent  (expected to be around July 2012) .
Under the exemption, organisations involved in exempt / non business activities will be able to form groups in order to pool certain costs.  The main rules are:
  • the group members are engaged in "relevant activities" (ie exempt or non business)
  • the costs are directly relevant to those activities
  • only the costs themselves are recharged; and
  • there is no distortion of competition.

This exemption goes beyond Charities but also applies to providers of exempt services - including financial institutions, education providers, healthcare providers and housing associations.
By way of example, under the new rules a group of education providers could arrange for one group member to buy in goods and services that are directly relevant to those activities. Subject to the rules that member could then recharge the other members without adding VAT.  This means groups can achieve the economies of scale arising from "bulk buying" without creating additional irrecoverable VAT as a result.
Many organisations will already have cost  sharing arrangements.  Hazlewoods' can assist in identifying relevant costs that could be pooled in a VAT efficient way.  For others, Hazlewoods can also assist in bringing organisations together to form a cost sharing group, negotiating with suppliers and setting up the recharge mechanisms.  
It is a good idea to start preparations early as there is time between now and Royal Assent to set up such a group in readiness for when the exemption comes into force.
For further information please contact Adam Lloyd on 01242 237661 or adam.lloyd@hazlewoods.co.uk