Introduction of VAT cost sharing exemption a victory for the sector, say CFDG

29th November 2011

Charity Finance Directors’ Group (CFDG) is pleased at the Government’s plans to introduce the long-awaited VAT cost sharing exemption, announced today in the Chancellor’s Autumn Statement document. CFDG has been lobbying strongly for implementation of the exemption, which will help charities who want to keep costs down by joining together to share services.

Caron Bradshaw, CFDG’s CEO, said: ‘We are really pleased that Government have heeded calls to implement this extremely important measure. Coming together to share services is an efficient, common sense way of keeping down costs, yet the VAT hit prevents many charities from adopting such arrangements. The exemption will make a real, positive difference to charities in what is such a difficult funding environment”.

As well as lobbying for the exemption’s introduction, CFDG has also pressed to ensure it is implemented in a way that is as useful as possible for charities. A major concern is the requirement to set up a separate legal entity, controlled jointly by members – way beyond the means of many smaller charities. While this requirement will be retained, the new proposals will provide the flexibility for well-resourced charities with existing staff and expertise to take the lead in facilitating these models, to the benefit of the wider sector.

Caron continued: “We raised our concerns with Nick Hurd MP and the exchequer secretary, David Gauke MP, and are really pleased that Government have not only been receptive to the arguments we put forward, but have clearly given a lot of thought to how this exemption could be implemented for the benefit of charities. While it doesn’t give us all we asked for, the announcement shows a real willingness to accommodate the needs of the sector, within the arguably difficult constraints HMRC and HM Treasury must operate within. We hope this support will continue and further progress will be made in addressing the wider problem of irrecoverable VAT for charities.

“Our job going forward will be to work with the sector to help charities ensure they can utilise the exemption to best effect.”

- Ends -

Notes to Editors:

1. CFDG is the charity that champions best practice in finance management in the voluntary sector. Our training and development programmes enable finance managers to give the essential leadership on finance strategy and management that their charities need. With more than 1,700 members, managing over £21bn, we are uniquely placed to challenge regulation which threatens the effective use of charity funds. For more information, please see www.cfdg.org.uk

2. CFDG’s response to the formal consultation, produced jointly with NCVO, can be read here. The response put forward a number of concerns relating to the proposed model for implementation, which would not allow any one organisation within a cost sharing group to have majority control.

 ‘2.7. Although many charities would want to adopt a ‘lead supplier’ model when sharing services, it would be possible to transfer the staff and supply arrangements into a separate entity in situations where the savings made the set up costs worthwhile. However, the requirement that no one member of the CSG can have majority control, as outlined in paragraphs 3.11 and 3.12 of the consultation document, is likely to prevent this happening. The charity with existing staff and expertise is likely to be uncomfortable with not having a level of control which reflects their stake in the CSG.

2.8. A newly formed CSG is likely to have trouble accessing credit, with no one lead organisation able to provide a guarantee, particularly since it will have little prospect of having substantial reserves (if tax was to be applied on any profits held back as reserves) and no credit or trading history.’

While HMRC has retained the requirement for a separate entity, they are to relax the control condition. This will make it easier and more attractive for well-resourced charities with existing staff and expertise to take the lead in creating a separate cost sharing entity, as it will allow the charity contributing the majority of resources to retain majority control over it.

3. On 5th September 2011 CFDG and NCVO met with Nick Hurd MP and David Gauke MP to discuss the exemption and the sector’s concerns, specifically the ‘independent group’ condition. On October 6th a follow up meeting was held with officials from HMRC and sector experts representing CFDG, NCVO and the Charity Tax Group. The group put forward a briefing detailing a workable model for implementation which would allow greater take up amongst charities. The three organisations also sent a letter to David Gauke MP, highlighting a number of issues and the importance of the exemption.

4. For further information, please contact CFDG policy officer Melora Jezierska at melora.jezierska@cfdg.org.uk or on 020 7250 8348.

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