Public services

VAT cost sharing exemption

The VAT cost sharing exemption was introduced into law as part of the Finance Act 2012.

The exemption allows qualifying organisations to share certain eligible services without incurring additional VAT costs.

To qualify for the VAT relief, a group of charities, such as a consortium, needs to set up a ‘cost sharing group’ (CSG).

The CSG can then undertake services and recharge the costs to the member charities, exempt from VAT (provided certain conditions are met).

CFG is looking closely at how the VAT cost sharing exemption can be improved so that more charities can access it and barriers to forming partnerships and consortia are removed.

Community Budgets

Community Budgets are based on organising public spending by place, rather than by individual organisations or services. Feedback suggestions that Community Budgets lead to greater collaboration between local authorities, NHS, emergency services and various national government agencies and helps to redesign better services.

The last government began four pilots for this approach and independent analysis from Ernst & Young for the Local Government Association suggests that savings of £9.4bn to £20.6bn could be achieved over five years were this approach adopted across the country.

Charities have a key role to play in redesigning services and making the Community Budgets approach work successfully.

CFG is monitoring the implementation of Community Budgets closely and wants to work with charities that are engaged in this delivery of Community Budgets. Please contact us if you're able to share your experiences.

Public Services (Social Value) Act 2012

The Public Services (Social Value) Act came into force on 31 January 2013.

It requires commissioners of public services to think about how they can secure wider social, economic and environmental benefits.

The Act aims to encourage commissioners to work with a range of providers rather than always opting for the lowest bidder.

The Act has been significant for many charities, often allowing them a more equal footing in procurement processes.

Charities need to be able to effectively measure, communicate and demonstrate their social value when bidding for grants and contracts. Below is a collection of some of the key resources available to charities wishing to find out more about how to do so:

CFG supports the implementation of the Social Value Act and wants it to be adopted across government, so that commissioners factor in the significant added value of charities in delivering public services.

New Public Contract Regulations have also been introduced which will provide more freedoms for commissioners to use social value and develop partnerships with charities. NCVO has published a short blog on the regulations.


Commissioners in public bodies are increasingly issuing contracts, rather than grants, for the delivery of services. This is due to shrinking local authority budgets, associated financial pressures and a subsequent increased need to secure that agreed outcomes are met when commissioning.

There has also been a shift towards Payment by Results contracts, whereby payment is agreed based upon the achievement of set outcomes.

These changes have a significant impact on charity finances – unlike a grant, charities can struggle to make the case for additional funding to cover overhead and running costs. Payment by Results contracts also mean that financial risk is transferred to the provider charity, away from the commissioner.

While there are positive examples of larger charities working with commissioners to agree outcomes in advance for PbR contracts, many charities lack the working capital required to maintain cash flow throughout delivery of PbR programmes.

CFG believes that contracting needs to be improved both to recognise the need for charities to be able to recover their costs and to remove barriers that make contracts too risky for charities.

CFG regularly runs training and events on managing contracts, grants and risk - see our events section for details.

The Compact

The Compact is a voluntary agreement that aims to support partnerships between public bodies and charities. It outlines a number of undertakings for each to subscribe to, in order to lay down ground rules and establish a level playing field at the beginning of their relationship – financial or otherwise.

Compact Voice has a number of resources and case studies outlining how areas across England have used the Compact to develop robust funding arrangements or deal with changes to programmes and services. 

CFG believes that partnership working is crucial to the development of the charity sector and is a firm supporter of the Compact.

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