A problem shared? Shared services, fear, loathing and VAT

There has been some debate on the FEWeek newspaper website about colleges and shared services. An Agitator op-ed suggested that shared services collaboration might end up with college principals in jail. The comments below the article seemed to highlight the doubts and even suspicions associated with the shared services agenda. No comments backed my suggestion that colleges could collaborate with colleges who are not competitors or even with other types of organisation.

Does any of this matter? Maybe.

In the summer the government’s Open Public Services White Paper explicitly encouraged shared services. Austerity will inevitably make cost cutting imperative.

One barrier to shared services has been tax. Colleges buying in services from outside suffer the irrecoverable VAT which in-house operations don’t incur. With VAT at 20%, the efficiencies from shared services (and, of course, other types of outsourcing) have to be significant to be worth the effort.

After three decades the UK government is getting round to implementing a European Union directive with a bearing on VAT on shared services. Last Friday a HMRC consultation closed on how certain types of shared service arrangements by charitable organisations might escape VAT.

The charities sector publication Third Sector has highlighted the debate on the significance or otherwise of the HMRC proposals. The National Council for Voluntary Organisations, the Charity Finance Directors’ Group, Universities UK and the National Housing Federation have declared that the proposed exemption is too restrictive:

In its proposed form, the exemption is likely to be of little use to the charity sector, particularly for smaller organisations who in many cases could benefit the most from cost sharing.

The Chartered Institute of Taxation have given the HMRC a hard time on the proposals too.

There is rumoured to be a divergence between a hardline HMRC worried about loopholes and a Treasury keen to see efficiencies in public services. Who will win? Who knows? But it will be a test case for the government with its commitment to a Big Society and its rhetoric about reform.

If the VAT issue is resolved, it will be up to colleges, universities and charities to think creatively and positively.