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VAT cost sharing group for charity

Do we need a separate legal entity?

I work for a largeish charity and have also become involved with a smaller one. I think the smaller one could use some of the larger one's back office functions (e.g. finance and HR).

They are both VAT registered and subject to partial exemption. I've been reading about the exemption for cost sharing groups but these seem to require a separate legal entity. This seems overly complex for the situation I'm envisaging. Is there any way services can be shared efficiently without incurring unnecessary irrecoverable VAT?

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By adf2410
24th May 2018 22:18

I work in the further education sector, and where colleges have entered into back office shared service agreements, all are separate legal entities (for the VAT exemption and to avoid having to put the shared staff into the expensive Local Government pension schemes).

The only way round it that I know of is to have the back office staff on split contracts (e.g. 80% with you, 20% with the smaller charity) - but that's got lots of legal issues around it, such as TUPE, continuity of service, etc. plus practical issues such as which employer picks up the tab for the odd day off sick.

I'd go with the separate legal entity option.

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