Collaborative Working - Goldblatt McGuigan

GOLDBLATT McGUIGAN30 MARCH 2011

Alfred House, 19 Alfred Street, Belfast BT2 8EQwww.goldblattmcguigan.com

COLLABORATIVE WORKING


JACKIE SMITHPartner, Audit and Business Services

Email: [email protected]

Telephone: 028 9031 1113


• Collaboration = The act of working with another or others on a joint project

• Collaborative working is people working together towards common goals


SHARED USE OF SKILLS AND RESOURCES:• Administration services

– Book-keeper or accountant– IT support services– Business development manager– HR Manager

• Premises and related overhead costs– Rent and rates– Cleaning– Light and heat– Repairs and maintenance


SHARED USE OF SKILLS AND RESOURCES:• Purchases

– Bulk buying arrangements

– Reduced wastage

• Capital Equipment– It may not be financially viable for an organisation to

purchase certain equipment on its own

• Informal sharing of information and resources– Expertise

– Experience

– Reduced printing costs


FUNDING:• Provides access to funding that smaller

organisations could not obtain on their own

• Can jointly tender for commissioned service delivery that each organisation could not deliver independently

• Funders often see collaboration as a means to get better value for their money


BENEFITS TO YOUR BENEFICIARIES:

• Enables an organisation to provide new or improved services

• May provide a wider geographical reach, or access to new beneficiary groups

• More co-ordinated approach to meeting the needs of beneficiaries


OTHER BENEFITS:• New ideas• Each organisation can focus on what they do

best• Increased profile• Strength in numbers• Stronger voice• Shared knowledge, shared experience and

shared risk when undertaking new projects


OBSTACLES:• Resistance to change• Competition between organisations• Lack of information• Cultural differences• Personalities• Lack of clarity over respective roles and

responsibilities• Lack of trust


RISKS:• Loss of autonomy and flexibility• Do the benefits justify the time and resources

invested?• Mission drift – resources may be diverted away

from the organisation’s core aims• Potential damage of reputation• Wasted resources if collaboration is

unsuccessful• Legal obligations


OTHER OPTIONS:

• Creation of a new separate organisation

• Merger



GETTING COLLABORATION RIGHT – TAX AND

VAT ISSUES


LYN HAGANTax Partner

Email: [email protected]

Telephone: 028 9031 1113


MAINTAINING CHARITABLE TAX STATUS

• Charities may claim exemption from taxation on income applied to charitable purposes

• Risk to exemption where the charity undertakes another activity

• Hive-down activity to a subsidiary vehicle, where required – mitigating tax using gift aid


VAT

Review of funding agreements/contracts required

Non-BusinessActivities

Business Supplies

Taxable Exempt

Standard-rated Reduced-rated Zero-rated


NON-BUSINESS INCOME INCLUDING GRANTS

• Income outside the scope of VAT• No input VAT recovery• Can irrecoverable input VAT be funded by grant?• David Cameron has previously commented that it

“should…look at funding them [charities] on the same basis the government funds itself” i.e. where VAT is refunded in relation to non-business activities


BUSINESS INCOME

• VAT liability of supply to be determined – taxable or exempt

• VAT registration where taxable supplies exceed VAT registration threshold of £70,000 (£73,000 from 1 April 2011)

• If already VAT registered – impact of business supply on input VAT recovery

– Taxable supplies – fully recoverable– Exempt supplies – irrecoverable unless de minimis– General overheads – apportioned based on method in use or

agree a special method with HMRC


WORKING IN ‘PARTNERSHIP’

• Who is the contracting lead ‘partner’?• Is the lead ‘partner’ administering a grant to its ‘partner’

or purchasing services from its ‘partner’?• Is irrecoverable input VAT created on the purchase of

‘partner’ services and how is this funded?


CONSIDERING A MERGER

• Consider all merging organisations’ sources of income and VAT impact of merger

• VAT registration threshold breached following merger?• Impact on input VAT recovery – agree a special method

to recover input VAT for newly merged organisation?• Transfer of a going concern (TOGC) VAT rules• Transfer of premises – tax and VAT considerations• Other taxes


SHARING/LEASING PREMISES – ZERO-RATING

• VAT impact of sharing/leasing your premises• Was zero-rating obtained within last 10 years on the

charity’s premises?• Prior to 1 March 2011 no VAT charge where original

intention was to use premises for 95% or more charitable purposes

• New rules from 1 March 2011 with potential VAT charge


SHARING/LEASING PREMISES – OPTION TO TAX

• Has an ‘option to tax’ been exercised on the property?• Disapplication of option to tax to be considered including

where property leased to a connected party or a charity in certain circumstances

• Potential clawback by HMRC of input VAT recovered by charity on property acquisition


SHARING OVERHEADS – EU COST SHARING EXEMPTION

• Currently the recharge of back-office expenses between charities is generally standard-rated for VAT purposes

• Additional VAT cost for recipient charities• Under EU VAT law such recharge of back-office

expenses is exempt• Awaiting implementation in the UK• 2011 Budget announced continued UK consultation


SHARING STAFF

• Supply of staff normally standard-rated for VAT purposes• VAT staff hire concession – value of supply can be

reduced • Joint employment contracts – no supply for VAT

purposes between joint employers

• Paymaster services – recovery of monies can be treated

as a disbursement


CONCLUSION – TAX AND VAT

• Maintenance of charitable status• Sources of income and VAT status• Impact of ‘partnering’/other arrangements and merging –

VAT registration, TOGC and input VAT recovery etc• Sharing premises – impact on zero-rating and option to

tax• Sharing overheads – potential future VAT exemption• Sharing staff – options to ensure no supply


DISCLAIMER

The views expressed in this presentation represent an outline of the relevant provisions and are not intended to be exhaustive. No action should be taken on the basis of information contained herein in respect of any specific case without obtaining the necessary professional advice. No responsibility for loss occasioned to any person acting or refraining from action as a result of the material in this presentation can be accepted by Goldblatt McGuigan.

Collaborative Working - Goldblatt McGuigan

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