The current proposal by the UK to treat the recharge of costs shared by charities as exempt from VAT – saving charities thousands of pounds – may be under threat.
Luxembourg enables group members who share costs to exempt all supplies between them provided their taxable activities do not exceed 30% of their total activities. The European Commission has delivered a “reasoned opinion” – the second stage of infringement proceedings – to Luxembourg stating that their law must be amended to conform with EU legislation which allows exemption only where the shared costs relate to services which are "directly necessary" for the users' exempt activities. Unless Luxembourg changes its legislation in the next 2 months, there will be a reference to the European Commission.
The Luxembourg position is directly relevant to the UK where the current proposal is to treat all services as exempt provided a 15% threshold for taxable activity is not exceeded. It may be that the UK's position will have to reflect the use to which services are put based upon a question of fact in each case – i.e. as to whether the services received are "directly necessary" for the exempt activities of the organisation.