HM Revenue & Customs has launched a consultation on a VAT exemption that would make it easier for charities to share services.
Charities that set up a joint subsidiary to provide outsourced services, such as IT or HR, currently have to pay what the Charity Tax Group calls an "artificial VAT charge" to that subsidiary, making it prohibitively expensive to do so.
European legislation that would create a VAT cost-sharing exemption has not yet been implemented in the UK. It would allow charities and other bodies exemption from these charges.
The CTG has been campaigning for several years for the introduction of this measure, and won a promise in the Budget of March 2010 that there would be a consultation on it.
John Hemming, chair of the CTG, said he was keen to see legislation on shared services appear in the next Finance Bill.
"We've been urging the government to introduce this mandatory exemption for several years," he said. "The existing VAT system acts as a major disincentive to closer working and collaboration – something the sector is keen to develop.
"This exemption will help remove one of the main barriers to effective collaboration."
David Gauke, exchequer secretary to the Treasury, said: "This is a complex relief that could have far-reaching impacts across a wide range of sectors. Careful consideration of the consultation results will be required."
The consultation will end on 30 September.