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VAT cost sharing exemption: HMRC guidance

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HMRC has published its initial guidance on the new VAT cost sharing exemption. FA 2012 s 197(2) introduced Group 16 to VAT 1994 Sch 9 with effect from 17 July 2012.

VAT Information Sheet 07/12, published last week, said: ‘The exemption applies when two or more organisations (whether businesses or otherwise) with exempt and/or non-business activities join together on a cooperative basis to form a separate, independent entity, a cost sharing group (CSG), to supply themselves with certain services at cost and exempt from VAT.

‘As a result a “cooperative self-supply” arrangement … is created. The CSG is a separate taxable person from that of its members. It is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt if the relevant conditions are met.’

HMRC has pointed out that the European Commission is ‘infracting a number of member states in relation to how they have applied the exemption’.

The outcome of infraction proceedings ‘could impact’ on how HMRC views the operation of the exemption. The Principal VAT Directive provides for exemption of the services of cost sharing groups. HMRC said it would ‘monitor these infractions and consider whether or not any changes are necessary to the guidance’. If changes prove necessary, transitional arrangements will be put in place ‘as far as possible’.

Publication of the guidance was announced in Revenue & Customs Brief 23/12.

Nick Burgin, Vice-President Indirect Taxes at IBM, told Tax Journal last month that the cost sharing legislation was ‘muddled and potentially distortive’.

The HMRC guidance said the exemption ‘applies only in very specific circumstances and will not cover all shared service arrangements’.

Categories: News , Indirect taxes , VAT