V16.1050 Impact on existing cost share groups following changes to HMRC's policy
Information Sheet 2/18, March 2018
Article 132(1)(f) of the Principal VAT Directive (2006/112) provides an additional exemption for certain activities that are in the public interest.
The exemption allows persons who carry on these activities to join together to form a cost share group (CSG) so that they can acquire services and recharge their members for their use of the services at cost without incurring any additional sticking VAT. This exemption allows small providers who can't afford to acquire assets on their own account to benefit from the same overall VAT position as larger providers who can afford to purchase the assets themselves.
The directive exemption is reproduced in Item 1 of Group 16 to Schedule 9 of the VATA 1994. There has previously been some uncertainty over what exactly the exemption was intended to cover, but this has now been clarified by the European Court of Justice in the cases referred to in Revenue and Customs Brief 3/18 (RCB/3/18, Division V16.3).
2 The findings in the cases
Luxembourg applied the cost sharing exemption (CSE) to services supplied by a CSG which were used by members of the CSG for both—
— exempt and non-business transactions
— taxable transactions for which the exemption was not available.
Luxembourg allowed the CSG to exempt its supplies even when the member's taxable transactions were up to 30 per cent (or in some cases 45 per cent) of its total turnover. The European Court of Justice