Hefce offers cash to promote back-office tie-ups

Sector yet to take full advantage of VAT exemption for ‘cost-sharing groups’

October 31, 2013

Universities are being offered £250,000 as an incentive to share back-office services and take advantage of a tax break introduced last year.

After concerted lobbying by universities, the government made new “cost-sharing groups” exempt from VAT, a change announced by chancellor George Osborne in November 2011. But so far take-up of the exemption has been slower than hoped, with potentially embarrassing consequences for the sector.

The money is being offered by the Higher Education Funding Council for England and can be accessed by cost-sharing groups “in the process of formation” to “work through challenges” and provide examples for others to follow.

Steve Butcher, Hefce’s head of procurement, said in March that he expected to see a glut of cost-sharing groups in the summer after rules governing the exemption were clarified in May, but so far few projects have exploited the tax break.

One deal in the works in the spring planned to share repair and maintenance services between an unnamed university, a housing association and two further education colleges.

It was hoped that the tie-up would save the university about £300,000 a year through economies of scale, but PwC, the consulting firm working on the deal, has yet to announce whether or not it will go ahead.

However, FX Plus, a company formed in 2004 that employs non-academic staff at Falmouth University and the University of Exeter, has used the exemption. And Jisc, the body that provides central IT services for UK universities, is also looking to set up a major cost-sharing group by August next year.

Perceived ingratitude

Before the tax exemption came into force in July 2012, universities had complained that shared service arrangements had to save at least the cost of VAT in order to be financially viable.

But in December, after a lack of take-up, the sector was warned that the coalition could see it as ungrateful for the exemption unless it started creating cost-sharing groups.

Jamie Arrowsmith, policy researcher at Universities UK, told a conference: “I don’t think any of us want a situation where the government turns round and says: ‘Well, you’re not doing any work on this, no one actually wants it.’”

The comments came as news broke that talks between the University of Warwick and five other unnamed universities over sharing IT and administrative services had broken down.

A spokesman for Hefce said it was “early days” for the exemption, pointing out that it had come into force only last year.

“We are now inviting proposals from potential cost-sharing groups that will act as pathfinders in developing good practice,” he said. “We’re expecting to be approached by groups already in existence that want to explore the possibilities of this legislation.”

The £250,000 will be shared between up to 10 projects.


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