Continued application of the VAT Cost Sharing Exemption

The VAT Cost Sharing Exemption is to continue to apply for housing associations. Deloitte explains why this is important for the sector and how it will continue to benefit National Housing Federation members.

9 July 2019

The National Housing Federation and Deloitte have been working with HMRC and a number of housing associations to ensure that the VAT Cost Sharing Exemption (“CSE”) can continue to apply to the sector. 

We are delighted to announce that HMRC have provided initial confirmation that the CSE will continue to apply to housing associations for the foreseeable future. They are in the process of finalising a formal announcement in this respect and are liaising with the Federation and Deloitte on this. 

The CSE allows persons who carry on activities covered by certain exemptions to join together to form a Cost Sharing Group (‘CSG’) so they can acquire services and recharge their members for their use of the services at cost without the members incurring any additional non-recoverable VAT. Where the CSE is successfully used, the VAT saved can be used for wider social benefit.

A number of Court of Justice cases had previously challenged the application of the Cost Sharing Exemption (CSE) to housing. Following those cases, Revenue and Customs Briefs (3) 2018 and (10) 2018 detailed various changes that have already been incorporated in the Cost Sharing Exemption Manual.  In that manual (CSE 1060), HMRC announced that it would be carrying out a review of the application to social housing organisations.

There will still be a number of conditions which must be met for housing associations to apply the CSE and these will continue to be important going forward. In addition, HMRC are seeking to clarify two specific points where they had perceived inconsistency in approach, the first being there must be no uplift of the costs being shared with any VAT group and that any body within the same VAT group as a cost sharing group cannot be classified as a ‘member’ for the purpose of the CSE.

The agreement (in principle) for the continued application of the CSE for the sector is a significant success for many of the Federation's members who operate or make use of a cost sharing group.