Autumn Statement: Reaction to VAT changes announced

14 November 2011 – 

Autumn Statement: Reaction to VAT changes announced

Huge pressure from not for profit sector leads to change of VAT treatment on cost sharing.

The Chancellor has announced today that a VAT exemption is to be introduced in the 2012 Finance Bill for supplies of services shared between VAT exempt bodies, including charities and universities.

Andrea Sofield, Not for Profit Indirect Tax Partner at Grant Thornton said: "Following a huge amount of pressure from EU and charity lobby groups, a new style consultation exercise was undertaken last year. As a result of the exercise, new legislation – which many in the not for profit sector believe should have been introduced nearly 30 years ago – will allow organisations to work together without VAT being an additional cost.

The proposed legislation will require organisations planning on sharing services to form an independent entity controlled by the members. The biggest challenge will be getting enough resource into such an entity as there will inevitably be hurdles such as pension and other HR issues to overcome.

"The newly formed entity must not compete against commercial suppliers of similar services and cannot make a profit, but it can budget for a surplus, allowing for future expansion.

"It is a welcome development. In reality, it is unlikely that many not for profit entities will take up the initiative immediately. However, I expect there will be greater interest in time as circumstances permit."

Government ends exploitation of Channel Islands VAT rules

The Chancellor has confirmed today that legislation is to be introduced to remove low value consignment relief (LVCR) for goods sent to the UK from the Channel Islands. The relief currently allows imports of low value postal packets from outside the European Union to be made free of VAT. The change announce today will take effect from 1 April 2012 and is aimed exclusively at Channel Islands businesses, removing completely the current £15 exemption which only took effect on 1 November. The Treasury has indicated that there are no plans to change the threshold in respect of imports from other territories.

Lorraine Parkin, Head of Indirect Tax at Grant Thornton said: "These changes are likely to have an adverse impact on many organisations who have fulfilment operations in the Channel Islands and the short time-frame before their introduction means that decisions on the appropriate commercial response will need to be made quickly.

"Questions arise as to whether country-specific measures are discriminatory and it is expected that the draft legislation will be carefully scrutinised by businesses to fully understand the broader implications. Businesses fulfilling from other territories outside the EU appear not to be affected. Therefore, subject to commercial and supply chain constraints, it would not be a surprise to see businesses move."

ENDS

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