In September I published a blog about the consultation then in progress concerning a VAT exemption for cost sharing between VAT exempt bodies. The purpose of this blog is to provide a brief follow up, in the light of the details published thus far by HMRC on the shape of its likely implementation.
My main concern, from the consultation document, was that the cost sharing exemption would only apply if a seperate vehicle for it was set up. I saw this as creating cost and "red tape" which might result in it not being widely used. There has been a slight change in the proposals as a consequence of representations made. This is to allow the cost sharing entity to be controlled by one of the members of the group. This should aid the process of getting the relevant resources for the provision of services into the special purpose entity. But it only assists if the idea is that one member of the group will provide such resources. It does not encourage all members to put their resources in. The result is still that a barrier of red tape faces successful implementation of this exemption.
I was also concerned about the potential for issues over the kinds of services that would be regarded as "directly necessary" for the members performing their non-taxable activities, and whether too restrictive an interpretation of that rule would remove the exemption from the very services that are most likley to be shared. So far, this potential issue does not seem to have emerged, but we still await the details of the regualtions, so a nasty surprise may yet be in store.
There is more detail one could comment on, but, leaving aside the disappointment over the need for a separate company to act as the provider of the exempted services, the proposals appear to be workable in the real world. It is a pity that some of the smaller organisations that might have most benefitted will inevitably be put off by the need to set up and resource a separate entity.
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