Exemption ― cost sharing (CSE)

Produced by Tolley
Exemption ― cost sharing (CSE)

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

  • Exemption ― cost sharing (CSE)
  • Scope of the cost sharing exemption (from 1 June 2018)
  • Housing associations
  • Directly necessary services (minor taxable use) ― rules applicable on or after 15 August 2018
  • Overseas CSG or members
  • Uplifting values
  • Relevant case law
  • Commission v Luxembourg (
  • )
  • Aviva (
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

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), which limit the scope of the CSE with effect from 1 June 2018.

Scope of the cost sharing exemption (from 1 June 2018)

CSE applies when two or more organisations with exempt and / or non-business activities join together to purchase services on a cooperative basis, and in doing so, form a separate entity, a cost sharing group (CSG), to supply themselves with qualifying services at cost. This ensures that an undertaking that legitimately purchases services to make supplies under one of the social exemptions is not burdened with additional VAT because it cannot purchase such services entirely on its own. This type of arrangement enables the creation of the same economies of scale for smaller businesses and organisations that 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 CSG is a separate taxable person from that of its members and is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt from VAT if the relevant conditions are met. HMRC states that there are two fundamental requirements that must be satisfied before the CSE can be used:

  1. “the CSG must consist only of operators carrying out an activity which is

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