Cost sharing exemption

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Cost sharing exemption
  • Scope of the cost sharing exemption (to 31 May 2018)
  • Scope of the cost sharing exemption (from 1 June 2018)
  • Transitional arrangements for existing CSGs
  • Relevant case law

This guidance note has been updated to reflect the changes resulting from the CJEU decisions in DNB Banka AS (C-326/15), Aviva (C-605/15), Commission v Luxembourg (C-274/15) and Commission v Germany (C-616/15). HMRC has published updated guidance in March 2018 which explains how the cost sharing exemption (CSE) will operate in the UK and the transitional arrangements that have been implemented in respect of organisations that correctly implemented the CSE based on the information provided by HMRC prior to this date.

HMRC has also published updated guidance that reflects its position with regard to the ‘directly necessary’ services that are amended with effect from 15 August 2018 (subject to the transitional rules until 31 December 2018).

Scope of the cost sharing exemption (to 31 May 2018)

This section provides an outline of the CSE that was applicable to organisations which entered into a cost sharing group (CSG) before the CJEU decisions were released and HMRC issued its revised policy.

Under the Principal VAT Directive, Article 132(1)(f), member states are required to exempt:

“The supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition.”

The UK’s interpretation of this article is outlined below.

CSE1050, CSE3120; VATA 1994, Sch 9, Group 16; Directive 2006/112/EC, Article 132(1)(f) ; De Voil Indirect Tax Service V4.187 (subscription sensitive); FA 2012, s 197

It is possible for two or more organisations, which make exempt and / or non-business activities, to join together to create a

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