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HMRC internal manual

VAT Cost Sharing Exemption Manual

HM Revenue & Customs
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Introduction: What is the Cost Sharing Exemption?

The exemption applies when two or more organisations (whether businesses or otherwise) with exempt and/or non-business activities join together on a cooperative basis to form a separate, independent entity, a cost sharing group (CSG), to supply themselves with certain qualifying services at cost and exempt from VAT.

As a result a ‘cooperative self-supply’ arrangement (a term the EU Commission use) is created. The CSG is a separate taxable person from that of its members. It is therefore able to make supplies for VAT purposes to its members. These supplies will be exempt from VAT if the relevant conditions are met. This type of arrangement enables the creation of the same economies of scale for smaller businesses and organisations as larger businesses and organisations naturally enjoy. Thus the more members of a CSG there are the greater the potential savings and lower the costs per member of operating the relevant CSG.

The cost sharing exemption applies only in very specific circumstances and will not cover all shared service arrangements.

See diagram of the basic structure in Appendix A (PDF 15.5kb).