Cost Sharing VAT Exemption – latest HMRC Position

Whilst we remain in the Single Market, VAT Regulations here in the UK will continue to be influenced by decisions taken within the European Court of Justice (CJEU). The issue of the operation of the VAT rules on the creation of Cost Sharing Groups is a recent example of this. HMRC here in the UK have issued revised guidance to explain how the current rules for such bodies will be impacted by recent decisions in the European cases of DND Banka AS; Aviva; Commission v Luxembourg and Commission v Germany.

The guidance can be found in Information Sheet 02/18 issued on the 22 March 2018. Whilst there will be changes to the VAT rules for Cost Sharing Groups (CSG) there are also transitional rules in place until the 31 May 2018.

The key areas affected from these European cases are that:

• The VAT Exemption on charges will be restricted to CSG’s whose members are involved in the following exempt activities:
  • Postal services
  • Education
  • Health and welfare
  • Subscriptions to trade unions and professional bodies
  • Sport
  • Fundraising by charities
  • Cultural services
  • The Exemption will be limited to members and CSG’s located here in the UK.
  • The Exemption of the Cost Sharing recharge will not be allowed where an uplift has been charged for any purpose that includes any uplift from transfer pricing.

It should be noted that until any further guidance is issued from HMRC that HMRC accept that social housing associations remain eligible for the purposes of the VAT Exemption as long as all conditions are met.

The businesses that have been excluded from the Exemption with effect from the 22 March 2018 include:

• Banks
• Insurance Businesses
• Betting and Gaming businesses
• Land and Property
• Investment Gold

We await more information from HMRC around their views on the interpretation from the European cases not just on the social housing sector but also on the test within the regulations as it governs “directly necessary services”.

It’s a topic area that will be covered at our VAT Forums in June for Housing Associations, Universities and Colleges so do book in to the relevant sector Forum to attend and learn more.  VAT Forum Events  

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