Shared services deals slowly take shape

Institutions consider projects to take advantage of VAT exemption

May 23, 2013

Source: Alamy

Clear savings sharing services could cut maintenance bills by £300,000 a year

A university is planning to contract repair and maintenance services from a housing association in order to take advantage of a government scheme that deducts VAT from shared services.

The unnamed institution could save about £300,000 a year from the arrangement, according to a senior employee at consultancy PricewaterhouseCoopers, which is working on the deal.

Richard Wallace, tax director, education sector at PwC, explained to a conference in London on 15 May organised by the Westminster Education Forum that the university, the housing association and two further education colleges were looking to form a “cost-sharing group” that would enable them to trade services VAT-free.

The university currently spends “well over a million pounds” on repair and maintenance services, he said, so it could save significant sums of money if it did not have to pay 20 per cent in VAT.

In return, the housing association would gain more business, leading to economies of scale and lower per-unit repair costs, he told the seminar, titled Higher Education Finances - TRAC Reporting, Shared Services and Diversifying Income Streams.

“Everybody is a winner,” Mr Wallace added.

In November 2011, the government announced that universities that shared services would no longer create a new VAT liability. The sector had long complained that VAT was a barrier to shared service projects, because it meant they had to make savings of at least 20 per cent in order to be economical.

But no successful shared services projects have yet been announced, and concerns were raised at a conference in December last year that the apparent lack of enthusiasm might antagonise the government.

Speaking at Shared Services in Higher Education: Achieving Proficiency, Improving Performance, Jamie Arrowsmith, a policy researcher at Universities UK, said: “I don’t think any of us wants a situation where the government turns round and says: ‘Well, you’re not doing any work on this, no one actually wants it.’ “

And Steve Butcher, head of procurement at the Higher Education Funding Council for England, told a UUK conference in February that “lots and lots” of universities were ready to cement such schemes, of which there would be a “first wave” in the summer.

Mr Wallace admitted that the VAT exemption had not so far led to a “stampede” of service-sharing schemes but said there was “far more activity” than before and that PwC was working on several such projects involving student accommodation, IT and human resources.

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