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Changes to the VAT exemption for cost sharing groups.

Following the decision of the Court of Justice of the European Union (CJEU) in a number of recent cases*, HMRC released a brief and information sheet announcing immediate changes to their policy on the Cost Sharing Exemption (CSE).

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12 April 2018

In section 4 (a), the brief confirms that with effect from the date of issue (22 March 2018), the CSE would be restricted to members who engage in the following activities, which are treated as exempt in the public interest*2, (i.e seven of the exempt groups within Schedule 9 of the VAT Act 1994). 

  • Postal service (Group 3)
  • Education (Group 6)
  • Health & Welfare (Group 7) 
  • Subscriptions to trade unions and professional bodies (Group 9) 
  • Sport (Group 10)
  • Fundraising by Charities (Group 12)
  • Cultural services (Group 13)

The brief indicates that as the CJEU judgements do not cover non-business activities, cost sharing groups engaged in these activities would be unaffected by these changes. It also indicates that Housing Associations can continue to apply the CSE for the time being, at least until HMRC provides further guidance on it.

Section 4(b) of the brief confirms that CSE members located in EU member states, other than the UK, will no longer be able to benefit from VAT exemption on their transactions with the CSG, and that the restriction on the CSE not being permitted to members located outside the EU would remain extant.

Section 4(c) the brief also confirms that the CSE will not be permitted where, for transfer pricing purposes, a price uplift has been charged on transactions. It stresses the fact that it remains HMRC policy that the CSE is not permitted where there has not been exact reimbursement.

*Commission v Luxembourg (C-274/15), Aviva (C- 605/15), DNB Banka (C-326/15), Commission v Germany (C-616/15)]

*2Article 132 in the Principal VAT Directive 2006/112/EC]

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To discuss these changes to HMRC policy on CSE or other issues surrounding VAT and the CSG, please get in touch.

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