HM Revenue and Customs Brief 3/18 - changes to the VAT exemption for cost sharing groups
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Purpose of this brief
This brief and the related VAT
information sheet explain the immediate changes that are taking place
policy following recent judgments in the 4 cases:
- Commission v Luxembourg - Case C 274/15
- Aviva Towarzystwo Ubezpiecze? na ?ycie S.A. w Warszawie
(Aviva) - Case C 605/15
- DNB Banka AS (DNB) - Case C 326/15
- Commission v Germany Ė Case C 616/15
It also explains other matters and tells you about other areas
that are under review and that may change later.
This brief should be read by existing cost sharing groups (CSGs) in conjunction
Information Sheet 02/18. The VAT
information sheet explains what transitional arrangements are in force
that have applied the exemption correctly based on earlier guidance. It
also explains where current guidance is amended by this brief.
2. Who should read this
This brief should be read by UK businesses in the finance,
insurance and other sectors who have implemented a cost share group (CSG), or are thinking
of implementing a CSG,
and have relied on HMRCís
published guidance in the Cost Sharing Exemption Manual, CSE1000 to
Accountants, consultants and others who provide VAT advice to the
businesses referred to above should also read this brief.
3. What is the Cost
Share Exemption (CSE)
As explained in the Cost Sharing Exemption Manual, (CSE1000),
the cost sharing exemption (CSE)
applies when 2 or more organisations (whether businesses or otherwise)
with exempt or non-business activities join together on a co-operative
basis to form a CSG.
A CSG is a
separate, independent entity, set up to enable its members to supply
themselves with certain qualifying services at cost and exempt from VAT.
As a result a Ďco-operative self-supplyí arrangement (a term
Commission use) is created. Because the CSG is a separate
taxable person from its members, itís able to make supplies for VAT purposes to its
members. This exemption allows small providers who canít afford to
acquire assets on their own account to benefit from the same overall VAT position as larger
providers who can afford to purchase the assets themselves. Thus the
more members of a CSG
there are, the greater the potential savings and lower the costs per
member of operating the relevant CSG.
applies only in very specific circumstances and wonít cover all shared
4. Explanation of
The immediate effects of the judgments are as follows.
(a) The CSE
will be restricted to members who engage in the exempt activities in
the following Exemption Groups in Schedule 9 of the VAT Act 1994, with
effect from the date of issue of this brief.
- postal service (Group 3)
- education (Group 6)
- health and welfare (Group 7)
- subscriptions to trade unions and professional bodies
- sport (Group 10)
- fund raising by charities (Group 12)
- cultural services (Group 13)
The judgments donít cover non-business activities and
engaged in these activities are unaffected by this change.
Thereíll be interim measures for existing CSGs that have
operated the previous guidance correctly.
Housing associations can continue to apply the CSE for the time
being until HMRC
gives more guidance.
In any case of avoidance or abuse, HMRC will apply
the guidance from the court from the date of the judgments.
policy will be amended to restrict the CSE to members
located in the UK. Itíll no longer be permitted to apply the exemption
for transactions with members located in other EU member states. The CSE has not been
permitted for members located outside of the EU, and this will remain
(c) A CSE
wonít be permitted where an uplift has been charged on transactions for
transfer pricing purposes. Itíll remain the position that the CSE wonít be
permitted in any other case where exact reimbursement canít be
5. What happens next
is considering the impact of the judgments on:
- the test for directly necessary services which enabled CSGs to ignore
certain non-qualifying supplies for the CSE
- the social housing sector
will give more guidance at a later date.
6. Action required
should consider the impact of the judgments as set out above and read VAT Information Sheet
02/18. Contact HMRC
if you need more information or if youíre asked to do so in the VAT Information Sheet.
About the Author
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