The cost-sharing exemption (CSE) originates in EU VAT legislation and despite being mandatory for EU Member States only became part of UK law through the implementation of Group 16 to VATA 1994 Sch 9 on 17 July 2012. This followed a prolonged lobbying effort by the third sector and other organisations. The purpose of this new provision is to allow organisations which cannot recover all the VAT they incur to share costs achieve economies of scale and improve efficiencies without incurring additional VAT costs.
Given the current economic and political environment this measure assists greatly with cost reduction supporting the government’s ‘big society’ agenda and the move towards divestment of public services into the third sector. Whilst outsourcing works well for fully taxable businesses for other organisations the...