Partner Article

Could the UK lose a VAT exemption?

Having taken 35 years for the UK to implement, the VAT cost sharing exemption could be under threat from the EU.

The cost sharing exemption allows supplies between an independent group and its members to be exempt from VAT, provided the members themselves make VAT exempt or non-business supplies.

However, by affording members to make some taxable supplies, equivalent of up to 15% of income, the UK could be in breach of EU rules.

The European Commission has just announced that it will take Luxembourg to the European Court as it too allows ‘members’ of a cost sharing group to make taxable supplies; in Luxembourg’s case, the ‘ceiling’ is 30%.

Over the years, UK governments made various excuses for not incorporating this VAT exemption into UK law. Notably for example, that VAT grouping was an alternative solution, that the provision was too ambiguous to be directly effective, or that no-one has demonstrated sufficient enthusiasm to make it worthwhile.

While it does seem to have failed to capture the enthusiasm of the UK’s not-for-profit sector and VAT exempt businesses, it would appear that the ambiguous criteria set by the UK could see its downfall.

This was posted in Bdaily's Members' News section by Baker Tilly .