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Changes to VAT exemption for cost-sharing groups

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HMRC has set out in a VAT information sheet and a Revenue and Customs brief the impact on existing cost-sharing groups of changes to its policy on the cost sharing exemption with effect from 22 March.

The guidance considers the ECJ decisions in Commission v Luxembourg (Case C-274/15), Commission v Germany (Case C-616/15), Aviva Towarzystwo Ubezpieczen na Zycie S.A. w Warszawie (Case C-605/15) and DNB Banka AS (Case C-326/15). These found that the CSE only applied to public interest activities covered by Article 132(1) of the VAT Directive and not to activities covered by Article 135, such as insurance and finance. HMRC agrees with the advocate general in Aviva and DNB Banka and takes the view that the correct analysis of the position under UK law is that ‘the CSE only applies to services which a group supplies to its members within the same member state’.

With effect from 22 March 2018, the cost sharing exemption (CSE) is restricted to members and cost-sharing groups (CSGs) located in the UK, and is not allowed where an uplift has been charged on transactions for any purpose. It will only apply where the members engage in the following exempt activities:

  • postal services (VATA 1994, Sch 9, Group 3);
  • education (Group 6);
  • health and welfare (Group 7);
  • subscriptions to trade unions and professional bodies (Group 9);
  • sport (Group 10);
  • fund raising by charities (Group 12); or
  • cultural services (Group 13).

The guidance outlines the transitional arrangements, allowing CSGs to rely on the previous guidance until 31 May 2018. Although the exemption will now be restricted to UK-based CSGs and members, the transitional arrangements may be available to CSGs located outside the UK, but within the EU, where certain conditions are met.

The VAT Information Sheet also details the changes to be made to HMRC’s VAT Cost Sharing Exemption Manual.

HMRC says it will provide more guidance on the impact of the judgments on the test for ‘directly necessary’ services, which enabled CSGs to ignore certain non-qualifying supplies for the CSE, and the social housing sector at a later date.

See VAT Information Sheet 2/2018 ( and Revenue and Customs Brief 3/2018 (

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