The cost sharing exemption from VAT

The following Tax practice note provides comprehensive and up to date legal information covering:

  • The cost sharing exemption from VAT
  • Why is a cost sharing exemption needed?
  • What is the aim of cost sharing exemption?
  • The cost sharing exemption
  • A cost sharing group formed by an independent group of persons
  • Members of a cost sharing group
  • Carrying on an activity that is exempt from VAT or that is not a business activity for VAT purposes
  • Receiving, or having a realistic and genuine intention to receive, qualifying supplies from the CSG
  • Which supplies qualify for the cost sharing exemption?
  • Directly necessary for the exercise of the relevant activity—prior to 14 August 2018
  • More...

The cost sharing exemption from VAT

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Tax?

Why is a cost sharing exemption needed?

The cost sharing exemption (CSE) has been included in Directive 2006/112/EC (the VAT Directive) since 1977. However, it was only introduced into the UK VAT legislation with effect from 17 July 2012. The delay in implementing this exemption resulted from the UK's uncertainty over the scope and purpose of the relevant provision of the VAT Directive. The lack of clarity relating to this provision has resulted in an uneven playing field across the EU as Member States have implemented this exemption in different ways. It has also resulted in EU litigation, the outcome of which assists practitioners in interpreting the exemption.

Historically, HMRC argued that the VAT grouping provisions in the UK VAT legislation were sufficient to cover the CSE as provided in the VAT Directive. However, the European Commission commenced

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