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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: ‘Directly Necessary’ services: How may ‘directly necessary’ services be identified? (guidance effective from 15 August 2018)

Expenditure on services received from a CSG that is attributable to both taxable and exempt and/or non-business activities can qualify as being ‘directly necessary’, but the exemption will only apply to the extent that they are used for a CSG member’s relevant exempt and/or non-business activities. 

Therefore, if the CSG and its members intend to use the exemption for services that are both directly necessary for their exempt and/or non-business activities and their taxable activities the CSG must apply an apportionment to the relevant supply based on the use of costs by the CSG member