VAT Cost Sharing Exemption – Final Guidance published

HMRC have published the final guidance for the VAT cost sharing exemption. The publication of the finalised guidance had been delayed as HMRC sought reassurance from the European Union Commission over some of the contents of the HMRC guidance, in particular in relation to the ‘directly necessary’ test.

29 August 2012

HMRC has now decided to publish the guidance. The final guidance includes this note on p.14 of the guidance:

Note - businesses and organisations considering forming Cost Sharing Groups (CSG) should note that recently the EU Commission have commenced infraction proceedings against Luxembourg for, among other things, their application of the ‘directly necessary’ condition, which is similar to the ‘simplification’ option offered by the HMRC in this guidance. (See Question 40, point 2.)

"The Commission are seeking to establish the principle that ‘directly necessary’ services are those that are used 'exclusively' by CSG members for their exempt and/or non-business activity. The matter has been referred to the European Court and timing is now in their hands. It could perhaps take several years to come to a conclusion, although it may conclude sooner.

"The EU Commission have currently decided only to commence infraction proceedings against Luxembourg in this respect although a number of other Member States have also adopted a similar approach. However further challenges cannot be ruled out.

"Decisions of the European Court are binding on Member States.

"HMRC will monitor the process and consider whether or not at any stage any changes need to be made to this guidance. Should changes prove to be necessary, then transitional arrangements, as far as possible, will be put in place to facilitate an orderly move to the revised position.”

Read the HMRC final guidance on cost sharing exemption (opens new window)