HMRC have confirmed in their Information Note issued on 29thNovember 2011 entitled “VAT: Cost Sharing Exemption”, that the long-awaited VAT cost sharing exemption will finally become a reality when the Finance Bill 2012 introduces the exemption into UK legislation from Royal Assent.
The exemption is mandatory under EC legislation but has never been introduced into UK VAT legislation as HMRC consider the wording in the European legislation is open to different interpretations.
The exemption will help charities and housing associations, universities and colleges who want to minimise costs by joining together to share services.
Coming together to share services is an efficient, common sense way of keeping down costs. The VAT charge on existing arrangements however, is prohibitive and a burden for many organisations.
Highlights from the HMRC Note include:
a) Draft legislation is to be published on 6 December 2011 in advance of implementing Article 132(1)(f) of the Principal VAT Directive (The Cost Sharing Exemption) in the Finance Bill 2012;The exemption can be used by organisations such as charities, universities and higher education colleges and housing associations;
b) The ability for existing cost sharing groups, which meet the legal conditions and have always applied those conditions consistently, to go back 4 years and submit a claim for any VAT that may have been overpaid plus interest;
c) Taxpayers currently and for the past 4 years being able to rely on the “direct effect” of European VAT legislation. HMRC will not challenge tenable applications of the exemption; and
d) The cost sharing exemption must meet the following conditions under the Principal VAT Directive:
- The cost sharing group must be independent.
- Members of a cost sharing group must make exempt and/or non-taxable supplies.
- Supplies by the cost sharing group to its members must be at cost.
- The services supplied by the group to its members must be “directly necessary” for the members’ exempt and/or non-taxable supplies.
- Cost sharing, using the exemption, must not cause a distortion of competition.
Organisations that consider they have overpaid VAT and meet the criteria now and have implemented those criteria consistently over the past, should lodge claims with HMRC under the “direct effect” of EC legislation for the past 4 years.
Vaughn Chown will be happy to discuss the issues and assist in making claims.