V16.995 Guidance on the Cost Sharing Exemption – from 17 July 2012
Information Sheet 7/12, August 2012
1 Introduction – what is the Cost Sharing Exemption?
The exemption applies when two or more organisations (whether businesses or otherwise) with exempt and/or non-business activities join together on a cooperative basis to form a separate, independent entity, a cost sharing group (CSG), to supply themselves with certain services at cost and exempt from VAT.
As a result a “cooperative self-supply” arrangement (a term the EU Commission use) is created. The CSG is a separate taxable person from that of its members. It is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt if the relevant conditions are met. This type of arrangement enables the creation of the same economies of scale for smaller businesses and organisations as larger businesses and organisations naturally enjoy. Thus the more members of a CSG there are the greater the potential savings and lower the costs per member of operating the relevant CSG.
The cost sharing exemption applies only in very specific circumstances and will not cover all shared service arrangements.
See diagram of the basic structure at Appendix A at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_PROD1_032269
2 Does the exemption apply to supplies of goods?
No, unless the goods are an ancillary element of a single supply of services under the normal single/multiple supply principles.
3 What is meant by “members” of a CSG?
A member of a CSG is a business or organisation that:
— is capable of jointly owning and controlling