D sector groups that share back office functions will be given tax relief on VAT payments, a move that could save organisations £125m a year in tax by 2016-17.
The VAT cost-sharing exemption will allow charities, universities and other non-profit groups to share costs without adding on VAT.
Experts welcomed the announcement but said with few details sketched out it was unclear how generous the plan would be in reality.
“In a sector that is reported to incur over £1bn a year in irrecoverable VAT, exactly how many charities will qualify for the exemption remains to be seen,” said McGrigors Tax partner Stuart Walsh.
The Charity Finance Directors’ Group said it would make a “real, positive difference”. “We are really pleased that government have heeded calls to implement this extremely important measure,” said its chief executive Caron Bradshaw.