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AUTUMN STATEMENT NEWSLETTER VAT MEMO 2011-2012 |
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Newsletter Issue 1 |
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November 2011 |
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Cost-sharing exemption See VM ¶352 The Government proposes to introduce a new exemption for eligible cost-sharing groups in next year’s Finance Bill. Further details will be published, along with draft legislation, next week. However, some elements of the new exemption are clear. Entities which make exempt supplies and those which make supplies outside the scope of VAT – in other words, entities which cannot recover all their input tax (or often any of their input tax) – are going to be allowed to form special groups for the purpose of cost-sharing. There is nothing to prevent any businesses from getting together to share costs and thereby enjoy economies of scale. However, if one entity incurs the costs and then makes recharges to the other entities, it has to charge VAT, which will be largely or wholly irrecoverable by them. In particular, where the cost-incurring entity incurs costs by employing staff, the VAT it charges to the others will be a cost generated by the arrangements, which would not have arisen had they all employed the staff directly. The new arrangements will make the recharges exempt from VAT. Certain restrictions will be placed on the exemption (with more details to emerge next week): » 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. Imports into the UK See VM ¶9436 As previously announced, from 1 April 2012 the low-value consignment exemption will be cancelled altogether in respect of imports from the Channel Islands.
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Disclaimer This newsletter is provided on the understanding that the information contained within it is for guidance only, and that the publisher is not in business to provide legal or accounting advice or other professional services. Readers entering into transactions on the basis of, or otherwise relying on, such information should seek the services of a competent professional adviser. While every care has been taken to ensure the accuracy of the contents, the editors and the publishers cannot accept responsibility for any loss occasioned to any person acting or refraining to act as a result of any statement in this newsletter. |
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Aside from confirming withdrawal of low-value consignment relief from the Channel Islands, the Autumn Statement’s only foray into the world of VAT came with the announcement that an exemption for cost-sharing groups will be introduced next year. Further details and draft legislation are expected next week but in the meantime, this newsletter describes the basic concepts. |
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