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This is a freeview 'At a glance' guide to the VAT costs sharing exemption. 

Charities, universities, colleges and housing associations can share costs without triggering a VAT charge by forming a Cost Sharing Group (CSG) under the cost sharing exemption.

The exemption is mandatory and was introduced into UK law with effect from 17 July 2012. Prior to that it still applied to UK business, by virtue of the Principal VAT Directive (PVD), Article 132(1) (f) and its predecessor, the Sixth Directive.

Qualifying conditions

The following conditions apply:

Recent developments

1 Restriction to public interest activities only

Following the decision of the Court of Justice of the European Union (CJEU) in DNB Banka (C-326/15) and Aviva Towarzystwo (C-605/15) on 21 September 2017, which confirmed that the exemption can only apply to 'public interest activities', HMRC have published a Policy Paper and Information Sheet confirming the additional conditions that must be met.

From 22 March 2018 onward the following changes are made to the CSG:

Transitional rules

Existing UK CSGs with UK members, were allowed to rely on the previous guidance until 31 May 2018, except in cases where there was likely to be a distortion of competion or tax avoidance.

Existing CSGs with UK and other EU members may be allowed to rely on the transitional rules above if all the below conditions are met:

Housing associations

Following the CJEU decision, HMRC published Revenue & Customs Brief 8 (2019) to explain HMRC's conclusions following its review of the application of the CSE to the social housing sector.

The Brief confirms that the CSE can apply to the social housing sector, where conditions are met: 

2 Changes to directly necessary condition

Until 14 August 2018 HMRC applied an 85% rule:

Following the DNB Bank case, from 15 August, HMRC have withdrawn the 85% rule (subject to transitional arrangments):

Transitional rules

External links

VAT Cost Sharing Exemption Manual

Revenue and Customs Brief 23 (2012): Guidance on Cost Share Group Exemption

Revenue and Customs Brief 3 (2018): changes to the VAT exemption for cost sharing groups

Revenue and Customs Brief 10 (2018): VAT - cost share exemption

Revenue and Customs Brief 8 (2019): review of the VAT exemption for cost sharing groups in the social housing sector


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