CSE1010 - Introduction: When does the Cost Sharing Exemption apply?

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

The exemption applies when two or more organisations with exempt and/or non-business activities join together to purchase services on a cooperative basis, and in doing so, form a separate entity, a cost sharing group or CSG, to supply themselves with qualifying services at cost.

This ensures that an undertaking that legitimately purchases services to make supplies under one of the social exemptions is not burdened with additional VAT because it cannot purchase such services entirely on its own.

This type of arrangement enables the creation of the same economies of scale for smaller businesses and organisations that larger businesses and organisations naturally enjoy. 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.

The CSG is a separate taxable person from that of its members and is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt from VAT if the relevant conditions are met.

There are two fundamental requirements that must be met in order to qualify for exemption:

• The CSG must consist only of operators carrying out an activity which is exempt from, or not subject to, VAT.
• The group must not exist for purposes of gain, and must only charge its members for expenses incurred by it in order to meet their requirements.

The cost sharing exemption does not therefore cover all shared service arrangements.

See diagram of the basic structure in Appendix A (PDF 15.5kb).