The VAT Issue
Further Information
HMRC consultation document and the UCISA response to the consultation.
One issue which in 2011 remains a genuine barrier, rather than a risk which can be mitigated, is value-added tax (VAT).
Shared services between institutions currently attract non-recoverable VAT at 20%. This means that any efficiency savings need to be of an order of magnitude greater than 20% in order to be worth the trouble of setting up the service. This has been a contentious issue for many years as the current position appears to be incompatible with government policy that institutions should be doing more to share services.
Rules governing VAT have been implemented differently in different parts of the EU and some EU member states apply an exemption which allows for the creation of Cost Sharing Groups (CSGs) amongst organisations who come from sectors with VAT exempt activities - such as education. To date the UK has not permitted any such exemptions but in 2011 HMRC (Her Majesty's Revenue and Customs) launched a consultation exercise to consider options for implementing the exemption in the UK.
The consultation closed on 30 September 2011 but at the time of publication of this infoKit the outcomes are unknown. The situation is complicated: there are various conditions to be met before CSGs could benefit from VAT savings and any exemption would be unlikely to apply to all shared services in the sector. HMRC has, as yet, given no firm commitment to implementing the exemption.
'The current VAT and corporation tax regime is not equitable across the public sector or even across the wider education sector.'
KPMG 2010
