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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: Directly Necessary services: What will happen if a member meets the 85% test by having an intention to make 85% or more exempt and/or non-business supplies in the following 12 month period but that

HMRC will not accept that all the CSG supplies to that member should be exempt but will permit the member to benefit from the exemption to the extent that the supplies from the CSG are ‘directly attributable’ (using partial exemption methodology) to their exempt and/or non-business activities. Members will only be able to use the forward look once.

The treatment of ‘directly necessary’ services is currently under review following the CJEU judgment in Commission v Luxembourg (case C-274/15).  When that Review has been completed, HMRC will announce any changes to take effect going forward.