VAT charge for shared services 'will not be removed before next year'

John Hemming, chair of the Charity Tax Group, says the change should have been made by now

Back-office services
Back-office services

The government is unlikely to change the tax treatment of charities that share back-office services until 2012, according to the new chair of the Charity Tax Group.

Charities that charge one another for a service, or create subsidiaries in order to share services such as IT and HR, have to pay what the CTG calls an "artificial VAT charge".

The group has lobbied the government to enact an EU directive that would remove the charge. The previous government announced a consultation on the issue in last year's March Budget. This is continuing, but progress towards legislation has been slow.

John Hemming, chair of the CTG and head of tax at the Wellcome Trust, said the government was unlikely to introduce changes in the next Finance Act, which will come afer the next Budget on 23 March.

"The timeframe for getting it into the next Budget and Finance Act means it is now extremely unlikely to happen," he said. "HM Revenue & Customs and the Treasury still say they need more information, and it's not likely they can get it in time.

"They are concerned about the cost implications if they enforce it. But this is something that ought to be in place. It has already been passed by the EU, and is already in place in other countries."

He said the government was vulnerable to a legal challenge if it did not enforce the directive.

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