When it was first announced in December last year I blogged about the froth of excitement (and I use that word advisedly) that the issue of VAT sharing might cause among Registered Social Landords. Nearly three months later and I’ve calmed down enough to form some more concrete conclusions about the role that VAT sharing could potentially have in the coming months. I’d like to make an offer to readers of this blog and followers on Twitter. I’m looking to get your thoughts and opinions on VAT sharing and I wonder if anyone would find it useful to join us in getting an external expert on the issue to construct a useful model that we could follow – if you want in, or you’re just such an expert let me know.
As I see it the big change is that the disincentive to commission others to provide services that existed for RSLs (and other organisations who generate a VAT-exempt income) has been removed. The mechanics are complicated and doubtless lawyers and HMRC will have some good tussles over how schemes can and cannot be set up, but in essence, the 20% financial penalty of commissioning another RSL to provide me with a service should now be avoidable. Clearly, this opens up a range of possibilities.
Doing things collaboratively to achieve better quality outcomes. It's the age-old discussion about whether it's better to have a smaller service in-house, or to band together with others and create a bigger, supposedly higher quality, service. This debate has raged since before the days of outsourcing regarding whether it actually delivers better outcomes and there's still no real consensus - in some cases it does, in some it doesn't.
Doing things at a larger scale to become more efficient. Instead of using the value generated by collaborative endeavour to improve quality, it could be used to reduce costs. This is the classic “economies of scale” argument, much loved in the public sector at just the time when its weaknesses are starting to show in the corporate world. You will know I’m not generally a fan of “bigger is better”, but under a VAT share agreement on repairs for example, I wonder just how much might be saved.
Agglomerating activities to a scale where other added value outcomes can be considered. Take printing as an example. We all use external printers, but small individual commissions have neither the buying power nor the added value potential of a collective approach. If this was joined together to funded a collective print set up, could we use this new organisation to benefit other groups. One immediate application of this is the potential training possibilities - just think of the number of apprenticeships that could be offered in such a set up. How much easier might it be for something owned by us all, but branded as none of us, to secure contracts from other customers? This is one case where collaboration would definitely help the creation of social enterprises.
Of course, the real crux of whether VAT sharing can be made to work is on how efficiently and productively we can learn to work with other organisations. Providing there was a reciprocity here – each giving up some thing but also getting something back in return, some of the barriers might, just might, be overcome.
So what are those barriers? The primary issue will be a loss of control. Would I really want a vital service to be taken care of outside of the organisation? Would an external body, even one partly or wholly owned by Trafford Housing Trust, really be as sensitive to our organisation’s needs? Whichever way you look at it, sharing is more complex than staying independent. Add to that the issue that within an organisation there is likely to be significant resistance to change – so the disruption any sharing activities caused would need to be factored in.
Finally, it introduces a new governance overhead; the organisations providing these joint services would need to be separate to our existing ones (although if I’ve read the exemption correctly, they could be owned by one or more of us) and we all know how governance overheads tend to have their crises from time to time. So, as ever, there are pros and cons and it might end up that the incentive to experiment is not rewarded by the products that emerge. I’d very much like to investigate further though, so who fancies joining in some bold new thinking about VAT sharing?
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| Will sharing be as popular in the offline world? |
As I see it the big change is that the disincentive to commission others to provide services that existed for RSLs (and other organisations who generate a VAT-exempt income) has been removed. The mechanics are complicated and doubtless lawyers and HMRC will have some good tussles over how schemes can and cannot be set up, but in essence, the 20% financial penalty of commissioning another RSL to provide me with a service should now be avoidable. Clearly, this opens up a range of possibilities.
Doing things collaboratively to achieve better quality outcomes. It's the age-old discussion about whether it's better to have a smaller service in-house, or to band together with others and create a bigger, supposedly higher quality, service. This debate has raged since before the days of outsourcing regarding whether it actually delivers better outcomes and there's still no real consensus - in some cases it does, in some it doesn't.
Doing things at a larger scale to become more efficient. Instead of using the value generated by collaborative endeavour to improve quality, it could be used to reduce costs. This is the classic “economies of scale” argument, much loved in the public sector at just the time when its weaknesses are starting to show in the corporate world. You will know I’m not generally a fan of “bigger is better”, but under a VAT share agreement on repairs for example, I wonder just how much might be saved.
Agglomerating activities to a scale where other added value outcomes can be considered. Take printing as an example. We all use external printers, but small individual commissions have neither the buying power nor the added value potential of a collective approach. If this was joined together to funded a collective print set up, could we use this new organisation to benefit other groups. One immediate application of this is the potential training possibilities - just think of the number of apprenticeships that could be offered in such a set up. How much easier might it be for something owned by us all, but branded as none of us, to secure contracts from other customers? This is one case where collaboration would definitely help the creation of social enterprises.
Of course, the real crux of whether VAT sharing can be made to work is on how efficiently and productively we can learn to work with other organisations. Providing there was a reciprocity here – each giving up some thing but also getting something back in return, some of the barriers might, just might, be overcome.
So what are those barriers? The primary issue will be a loss of control. Would I really want a vital service to be taken care of outside of the organisation? Would an external body, even one partly or wholly owned by Trafford Housing Trust, really be as sensitive to our organisation’s needs? Whichever way you look at it, sharing is more complex than staying independent. Add to that the issue that within an organisation there is likely to be significant resistance to change – so the disruption any sharing activities caused would need to be factored in.
Finally, it introduces a new governance overhead; the organisations providing these joint services would need to be separate to our existing ones (although if I’ve read the exemption correctly, they could be owned by one or more of us) and we all know how governance overheads tend to have their crises from time to time. So, as ever, there are pros and cons and it might end up that the incentive to experiment is not rewarded by the products that emerge. I’d very much like to investigate further though, so who fancies joining in some bold new thinking about VAT sharing?
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