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Charities' cost-sharing arrangements may soon be more attractive

05 July 2010

At a time when many charities have seen a decline in their income, cost-sharing arrangements between them may seem appealing.

Historically, the resultant VAT cost has often made them think again, but that could be about to change.

As any VAT suffered is often an absolute cost for charities, the VAT suffered on recharges made between charities entering into cost-sharing arrangements in such areas such as IT, for examples, for example, IT, has often outweighed the potential benefit of such arrangements.

Charities in certain other EU states are not subject to a similar barrier when considering such arrangements as there is a VAT relief available under EU VAT legislation that exempt such arrangements from VAT.

But the UK has not adopted this relief. HM Revenue & Customs had previously argued that there was no need to bring it into force as the same effect could be achieved under other VAT legislation, something with which charities did not agree.

Finally the lobbying by the charitable sector appeared to have paid off as, in the last Budget announced by the Labour administration in March 2010, there was recognition of ‘the efficiencies that can be achieved by organisations such as charities sharing services and the potential VAT barrier that exists’.

The change in government, though, meant there was uncertainty about whether this would be followed through.

However, in the Emergency Budget, the new government announced that, ‘the Government has started discussions with charities and other affected sectors to consider options for implementing the EU cost sharing exemption. It will continue those discussions and launch a formal consultation in the autumn’.

So, although charities are still going to have to wait a little while longer, it looks like cost-sharing arrangements may soon be more attractive. This is something that will be particularly welcome with charitable giving likely to remain depressed for the foreseeable future.

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