VAT cost-sharing exemption – impact of recent decisions on the sector

Deloitte and the Federation are engaging with HMRC to ensure housing associations can continue to benefit from the cost-sharing exemption.

6 July 2018

HMRC has now issued Revenue and Customs Brief 3 (2018) announcing that, with immediate effect, it is applying the Court of Justice of the European Union (CJEU) judgments in Aviva and DNB Banka cases, and will only allow certain industries to apply the cost-sharing exemption. 

However, as a result of discussions that Deloitte and the Federation have had with HMRC, this brief and a subsequent update to the manual explicitly confirm that housing associations can continue to apply the exemption pending further guidance, and that if any change is introduced it will be prospective. 

The Federation has made a further submission to the relevant HMRC policy team setting out why the sector ought to continue to benefit from this exemption.

The impact of CJEU decisions

As set out in previous articles, the recent CJEU judgments on the applicability of the cost-sharing exemption significantly limit the scope of the exemption throughout the EU. 

In essence, the judgments have confirmed that the exemption only applies to activities that are in the ‘public interest’ (found in Article 132 of the Principal VAT Directive), which includes education, welfare and healthcare activities, and will not apply to those in other sectors such as land/property and financial services (which are found in Article 135). 

Our engagement with HMRC

Following the CJEU decisions, the Federation and Deloitte met HMRC to set out the importance of the cost-sharing exemption to the housing association sector. 

Since then, the Federation has:

  • Conducted a survey of members, finding that 47 used cost-sharing groups (CSGs), and that no commercial/for-profit organisations were members of these groups. The responses to the survey set out a total annual saving of £4.6m across the sector, which could be used to service £102m of debt and fund an extra 4,522 homes over the next five years.
  • Made a submission to the HMRC policy team responsible for the cost-sharing exemption, setting out the policy and VAT technical reasons in support of continuing to apply the exemption within the sector.  

If HMRC agrees, this should mean that the recent CJEU decisions will not prevent housing associations from operating CSGs, and you should be able to continue to apply this exemption.  

If you would like to discuss further, please contact Will Jeffwitz ( or your usual Deloitte contact.