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The deadline for proposals is noon on Monday 16 December 2013.

Dear Vice-Chancellor or Principal

Cost sharing groups and VAT exemption: Developing good practice

1. This letter invites expressions of interest for £250,000 of funding that will be made available for developing and disseminating good practice in shared services. HEFCE is interested in disseminating the learning of institutions applying the Value Added Tax (VAT) cost sharing exemption, as implemented in the Finance Act 2012. In particular, we are interested in supporting groups to work through issues arising from the development of Cost Sharing Groups, with the aim that they will then provide guidance for others.

2. Proposals must be submitted using an electronic form, access to which can be arranged by contacting us at The deadline for proposals is noon on Monday 16 December 2013. We anticipate funding up to 10 projects, with the level of funding depending on the scale and outcome of each project.

3. As dissemination and learning are the key outcomes of the funding, participants are expected to share and discuss their findings with others across the sector while the project is in progress.


4. Universities and colleges have been unable to exploit the full potential of shared services as a means of cutting costs, because these services have incurred VAT. In the March 2010 Budget Statement, the Chancellor of the Exchequer announced that the Government would work with charities and other affected sectors to consider options for implementing the European Union cost-sharing exemption to address this potential barrier.

5. The exemption was implemented in the 2012 Finance Act. It applies when two or more businesses or other organisations with exempt or non-business activities join together on a cooperative basis to form a separate, independent entity to supply themselves with certain services at cost and exempt from VAT. Such entities are known as cost sharing groups.

6. Guidance on the cost sharing exemption, which supplements the legislation, is available on the HM Revenue and Customs web-site.

Purpose of this funding

7. In August 2013, HEFCE published guidance for the higher education sector on the cost sharing group exemption. The guidance has been written such that future developments can be incorporated, to ensure that it is always up-to-date. We now intend to fund a number of projects whose key learning points can supplement the guidance and provide examples of how the exemption works in practice.

8. We expect to fund projects at different stages of development. In this way we plan to gain from the experience of early adopters, and to support institutions in working on specific areas where good practice would be helpful.

9. All funded projects will need to be completed by December 2014 for us to gather the information that will supplement and update the guidance. HEFCE aims to visit each project in January 2015, or earlier if appropriate, to discuss project outcomes and identify key learning points that will be shared across the sector.

Funding and eligibility

10. A total of £250,000 is available. We anticipate funding no more than 10 case study projects.

11. All HEFCE-funded institutions are eligible to apply, including further education colleges offering higher education. We will fund cost sharing groups made up of two or more partners.

12. We are particularly interested in projects that will explore issues relating to forming and managing of cost sharing groups. For example, staffing considerations such as Transfer of Undertakings (Protection of Employment) (TUPE) regulations and the transfer of pensions, relationship management with HM Revenue and Customs, costing and pricing to provide evidence of the direct reimbursement of costs, and planning for service expansion are all areas which could be of interest.

13. Existing shared services and cost sharing groups in the process of formation may apply for funding to work through challenges. The funding can be used for additional legal advice, indirect tax consultancy, general business consultancy or other direct costs involved in addressing an issue.

Application and assessment

14. An application form will be made available to institutions through the HEFCE extranet. To arrange access to this form and to discuss your project, please e-mail Since funded projects will be working closely with HEFCE, we encourage interested institutions to make early contact with us, while preparing their proposals during October or November. Applicants will be given a named contact at HEFCE who will be able to offer further advice. The deadline for requesting initial access to the form is 30 November 2013.

15. When the form has been accessed, applications can be edited on the extranet at any time until the final section is completed and saved. When an institution completes and saves the final section, the application is deemed to have been submitted to HEFCE. Applicants will receive an acknowledgement e-mail from HEFCE within five working days.

16. The deadline for receipt of applications is noon on Monday 16 December 2013.

17. Proposals will be considered by an assessment panel, using the following criteria:

  • clarity and quality of information submitted
  • predicted financial benefits of the proposed cost sharing group
  • project management arrangements
  • extent to which the project will contribute to good practice
  • overall benefit (potential for replication of the learning areas across the sector)
  • plans for how the learning will be identified and disseminated.

 18. The approximate timetable is set out below.



15 October 2013

Project launch; form available.

October to November 2013

Preparation of applications including discussions with interested parties.

16 December 2013

Deadline for submitting proposals.

January 2014


Late January 2014

Announcement of successful projects.

February 2014

‘Community of practice’ meeting for all project leads. Date and venue to be confirmed.

February or March 2014

Commencement of funding.

January 2015

End of funding. (In some cases this may occur earlier.) HEFCE officers will visit project managers to gather material for the guidance.

19. As part of the learning and dissemination element of the project, we are keen to engage collectively with all project leads at a ‘community of practice’ meeting, at the start of the project. We see this meeting as an effective mechanism for understanding the issues facing institutions in developing practice, perhaps sharing experiences of how particular issues might be addressed. We also see the meeting as an opportunity for project leads to network with each other. If it is felt to be useful, we may convene a further meeting at the end of the project funding in 2015.

20. As set out in the timetable above, we propose holding the ‘community of practice’ meeting in February 2014.

Financial and reporting arrangements

21. Successful projects will receive their funding in a series of profiled payments during 2014. A brief quarterly report to HEFCE will be required.

22. Each project will be expected to engage with the Efficiency Exchange, sharing findings and insights as they emerge. This engagement may take the form of blogs or webcasts. Project teams should contact the Efficiency Exchange while drafting their proposals, and include details of how they propose to work with the Efficiency Exchange for the duration of their project. Additional innovative approaches to dissemination will be welcome, and can be discussed during project development.

Equality and diversity

23. The Equality Act 2010 places HEFCE under the Public Sector Equality Duty, and we publish information annually demonstrating what we have done. There is a question in the form asking how the project will contribute to HEFCE’s statutory duty to support equality and diversity in the sector. Guidance on equality impact assessments is available on the Equality Challenge Unit’s web-site.

Freedom of Information Act 2000

24. HEFCE is subject to the Freedom of Information Act 2000, which gives a public right of access to information held by a public authority. This may mean that applications, communications between us and institutions, information arising from work undertaken or its outputs become subject to disclosure if a valid request is made to us. We will comply with such requests in accordance with the legislation and our own policies. Please alert us to any potentially sensitive information while completing the application form.

25. Further information about the Freedom of Information Act can be found on the Information Commissioner’s web-site.

Further information

26. If you have any queries, please contact our e-mail inbox (

Yours sincerely

Steve Egan

Interim Chief Executive


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Date: October 2013

Ref: Circular letter 27/2013

To: Heads of HEFCE-funded further education colleges, Heads of HEFCE-funded higher education institutions

Of interest to those
responsible for:

Administration, Estates and Finance

Enquiries should be directed to: