Removal of VAT barrier to encourage shared services

A major barrier to universities saving money by sharing services is set to be removed by the government.

November 29, 2011

In his autumn statement today, the chancellor George Osborne said that the government would introduce a VAT exemption for services shared between organisations that are already exempt from the tax, such as universities.

In the past, universities have been deterred from saving money by sharing services such as payroll and procurement because any new operation would have to charge VAT back to the partner institutions.

This would mean that a shared operation would need to save at least the cost of VAT – currently 20 per cent – to be worthwhile.

However, the new arrangements – which had already been consulted on following the 2011 Budget – suggest universities could set up a new joint organisation to run services without facing an extra tax bill.

Nicola Dandridge, chief executive of Universities UK, said the move was “good news” for the sector and met a key recommendation from the recent Diamond Review of efficiency in higher education.

“Universities have wanted to develop more cost-effective operating models, and more creative collaborations with external partners.

“But to date, the VAT rules have acted to block this. We hope today's announcement will address this issue,” she said.

Meanwhile, the chancellor announced the launch of an online portal called HE Global to provide information and advice to universities on expanding overseas and also a vehicle to help the sector, government and business work together in selling “education offers” abroad.

Paul Marshall, executive director of the 1994 Group of smaller research-intensive universities, said: “Having ready access to insight and advice through a resource like HE Global will help institutions implement their own international strategies.

“We’ve also called for a collaborative approach to promoting cross-sector opportunities overseas. The new vehicle proposed in today’s statement will no doubt play a big part in making this a reality. We look forward to helping to take this forward.”

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