VAT News

Cost Sharing Groups – What are they and how do they work?


This section of the VAT legislation does not appear to get much airtime so we thought it worth revisiting what a cost sharing group arrangement entails from the VAT perspective as it was meant to encourage collaboration across VAT sensitive sectors. Actions need to be undertaken to create a cost sharing group but as we see increasing examples of collaborative arrangements across the not for profit sector more generally as well as in the education and housing sectors we also need to establish whether such plans don’t unintentionally fall into the cost sharing VAT Exemption treatment when it comes to the recharging element.

So what is a cost sharing group and how does it change VAT liabilities?

Provided certain conditions are met, VAT exemption applies when two or more organisations with exempt and/or non-business activities join together to purchase services on a cooperative basis with the aim to supply these qualifying services to themselves at cost. The purpose of the exemption is to ensure supplies under one of the social exemptions is not burdened with additional VAT that it would not be able to recover.

The cost sharing group (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 all the following conditions are met:

  1. There must be an ‘independent group of persons’ (a CSG) supplying services to persons who are its ‘members’.
  2. All the members must carry on an activity that is exempt from VAT or one which is not a business activity for VAT purposes.
  3. The services supplied by the CSG, to which the exemption applies, must be ‘directly necessary’ for a member’s exempt and/or non-business activity.
  4. The CSG only recovers, from its members, the members’ individual share of the expenses incurred by the CSG in making the exempt supplies to its members.
  5. The application of the exemption to the supplies made by the CSG to its members is not likely to cause a ‘distortion of competition’.

If any of these conditions are not met the supplies will be taxable.

Social Housing – Sector Update

The application of the cost sharing exemption to the social housing sector was recently under review and HMRC’s conclusions were published in August 2019 (details found here). In summary, following the DNB Banka AS case, HMRC considers that the existing arrangements should continue for social housing associations, but only on the basis the following additional conditions are also met:

  • there must be no uplift of internal or external costs (for example, resulting in a margin or profit on actual costs being recharged) within the CSG;
  • there must be no uplift of the costs being shared within any VAT group including either, the CSG itself, and or the members of the CSG;
  • there must be no uplift of costs by a VAT group member supplying a CSG in the same VAT group;
  • there must be more than one member of the CSG, the count does not include members that are in a VAT group either with the CSG, or with other members; and
  • the CSG only applies to providers of social housing (registered social landlords) and not to private housing providers.

Housing associations can therefore continue to apply the exemption (subject to meeting the above conditions), but consideration should be had as to whether HMRC’s update affects the existing arrangement in any way.

If you are looking at Joint Venture or collaborative working arrangements and operate in the VAT Exempt areas of the legislation the cost sharing arrangements should be considered as to whether they catch your plans unintentionally or whether they make a sensible VAT approach to take. It’s certainly in the area where “VAT gets complicated” which is where the Centurion VAT team are there to support. If you would like to discuss the cost sharing exemption or require further information on its relevance to your organisation, please contact a member of the Centurion VAT team at


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