HMRC to consult on VAT exemption

THE TAXMAN has set out proposals to waive VAT charges for non-profit organisations that share costs.

Currently charities and other non-profit organisations are charged VAT on goods and services received in cost sharing agreements.

As they are unable to reclaim this tax in full, many organisations are finding the efficiency savings offered by cost sharing eliminated by the related VAT charge.

The proposed exemption would waive the charge for these firms.

Introducing the exemption would bring UK tax law in line with the corresponding European VAT Directive.

However Andrea Sofield, partner at Grant Thornton, said many of key details still needed to be hammered out, “particularly the specifications of how exactly the cost sharing exemption will work and who will be able to take advantage of it”.

Richard Wild, director of VAT at PKF, said: “The commencement of the cost-sharing consultation exercise is long overdue – the exemption could give many charities a much needed cash boost. At first glance, the proposals appear to be a very positive step towards implementing the exemption in the UK.

“The government also appears to be taking an inclusive and pragmatic view of the type of support services that should qualify for the exemption: hopefully this will make it easier for organisations to realise the VAT savings that the EU rules are intended to make available.”

Affected organisations have until 30 September 2011 to submit their views. A summary of responses are to be published in the autumn.

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