Charities, Registered Social Landlords, universities and other “eligible businesses” looking to achieve efficiencies may wish to join with other organisations (perhaps with common purposes or activities) to share costs and resources.
Arrangements which involve the provision of services by one organisation to another will usually incur a 20% VAT charge between the participants. This can become a significant obstacle to resource sharing arrangements if the recipient of the services (for example, a registered charity) is unable to recover the VAT in full.
In effect, if you incur VAT, then for there to be any monetary benefit in resource-sharing, the recipient organisation would have to demonstrate that the cost of the services is more than 20% cheaper than the available alternatives.
However, the cost sharing exemption provided for in European legislation (the Principal VAT Directive (2006/112/EC) – the “PVD”) may provide a solution to the problem.
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