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HMRC internal manual

VAT Cost Sharing Exemption Manual

From
HM Revenue & Customs
Updated
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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?

Do all members have to have exempt and/or non-business activities?

Yes

The EU Commission accept that it is legitimate, in order to facilitate the correct and straightforward application of the exemption, for Member States under Article 131 of the Principal VAT Directive, to require that the exempt and/or non-business activities of members be carried on in a regular and consistent manner rather than merely sporadically. The relevant activities need to represent a significant (not a de minimis) part of the taxpayers business.

HMRC consider 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 and 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.

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.