Value Added Tax

Exemption ― cost sharing (CSE)

Produced by Tolley
  • 22 Dec 2021 18:45

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
  • Housing associations
  • Directly necessary services (minor taxable use)
  • Overseas members

Exemption ― cost sharing (CSE)

This guidance note provides details of the current conditions that need to be satisfied in order for supplies to be exempt under the cost sharing exemption (CSE).

Scope of the cost sharing exemption

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 exempt from, or not subject to, VAT.

  2. the group must not exist for purposes of gain,

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