HMRC internal manual

VAT Cost Sharing Exemption Manual

CSE3620 - How the conditions are to be interpreted: Exempt and/or non-business activities: Do all members have to have exempt and/or non-business activities?

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.


Member States are entitled to require that the members carry on their exempt and/or non-business activities in a regular and consistent manner rather than merely sporadically. The relevant activities need to represent a significant (and not a de minimis) part of the taxpayer’s business. The Commission supported this interpretation in Toetsing (case C-407/07).

HMRC considers that an entity would be eligible for membership if:

  • 5 per cent or more of its total supplies were exempt and/or non-business supplies in the immediate 12 months prior to joining the CSG
  • or 5 per cent or more of its total supplies were exempt and/or non-business supplies in its last completed partial exemption, business/non-business year prior to its membership of a CSG
  • or at the time of joining a CSG, although it does not fulfil the first two tests it:
    i) has an intention to receive and does receive, qualifying services which are ‘directly necessary’ from the CSG, in the 12 month period starting from the date of joining
    ii) those services are directly utilised within 12 months of receipt by the member to make 5 per cent or more exempt and/or non-business onward supplies.

The exempt activity of members must fall within the particular Exemption Groups known as ‘public interest’ activities (see CSE1030).

If a member ceases to be eligible for membership of the CSG, going forward, there have to be at least two remaining eligible members for the CSG itself to continue to be a CSG falling within the terms of Group 16 of Schedule 9 to the VAT Act 1994 and therefore to continue to be able to make exempt supplies.

If a body is wholly taxable but has a clear intention to make exempt and/or non- business supplies within the next 12 months HMRC would accept it is eligible to join a CSG.