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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: Direct Reimbursement of Costs: What is the position if the CSG needs to raise funds?

If a CSG wishes to raise funds, for example, to make a capital purchase or to build up a contingency fund it can do so without breaching the ‘at cost’ condition. It is also accepted that there may be timing differences between when expenses are incurred by a CSG and when it receives income for the supplies it makes to its members. Therefore it is probable that at any point in time a CSG could be running either a deficit or a surplus. Provided the CSG can demonstrate that the ‘exact reimbursement’ rule has been met over a reasonable period of time, running a deficit or surplus (provided any surplus is held for future use by the CSG for the specific benefit of its members) will not affect the use of the exemption. CSGs can demonstrate whether the ‘exact reimbursement’ test has been met or not by using normal accounting techniques and the judgement can be made over a period of time that is reasonable given the nature and context of the supplies being made.