On 24 August 2012, HMRC issued Brief 23/12 and VAT Information Sheet 07/12 detailing UK policy for the “Cost Sharing Exemption” rules which became law on 19 July 2012.
When two or more organisations with exempt or non-business activities form a separate entity (a cost sharing group (“CSG”)) to supply themselves with certain services at cost, the supplies by the CSG to its members will be exempt from VAT. The idea is that several exempt or non-business organisations can benefit from economies of scale by sharing service-providers and there are a large number of organisations that could potentially benefit – e.g. charities, banks, educational institutions, financial services businesses, insurance businesses, social housing organisations, betting/gaming businesses, health/welfare organisations, local authorities, government departments etc.
As usual, there are various conditions and anti-abuse rules. Importantly, passing all the required tests means the supplies by the CSG to its members must be exempt (it is not a choice), whereas failing any one of these tests will result in the supplies being taxable.
Your clients might be associations, clubs or other entities which make supplies to their members, shareholders or partners. Alternatively, your clients might wish to set up a CSG to benefit from the exemption. In either case, these clients should now consider how the new CSG exemption rules apply to their transactions.
For further information on the Cost Sharing Group Exemption, including reviews of existing or proposed projects, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown (VAT) or Kevin Hall (VAT).