Public sector shared service vehicles are seen as opportunities to reduce costs and create business efficiencies. We review some of the commercial issues that clients often come up against in their quest for savings and productivity improvements.
Clearly the shared services vehicle will be required to charge VAT on its services provided to the public sector partners. These services are unlikely to be an exempt supply for VAT purposes but the partners are likely to be partially exempt for VAT purposes. The shared service vehicle therefore simply increases immediately the price per service making the idea commercially unviable at first glance unless further savings can also be secured.
Other VAT issues may arise from the transfer of existing business units to the new vehicle. Clearly personnel will be transferred under TUPE type arrangements but care will need to be taken to ensure that the VAT transfer of a going concern provisions are utilised to avoid a VAT charge on the value of the undertaking transferred to the new vehicle.
If the shared service vehicle is to have its own premises then some VAT planning may be needed to minimise the VAT implications of property ownership or rental.
The input costs of the vehicle will be primarily salaries and administrative overheads some of which will be chargeable to VAT. The vehicle will therefore be in a VAT payable position which will impact its cash working capital needs.
It is possible that the vehicle will trade at a loss in the first year as a consequence of set up costs. Planning should take place in order to maximise the use of these losses. The vehicle will be unable to pay a dividend to its stakeholders if it trades at a loss and this will need to be factored into the forecasting model.
The financial implications of transferring two sets of employees from different partner bodies with possibly different pay and benefit scales may need to be factored into the forecast costs.T Girn
29 July 2009