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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: Direct Reimbursement of Costs: How are charges for management and similar services to be treated?

If a CSG chooses to buy in such services from third party suppliers or from a CSG member then such services will normally be taxable. If these supplies are then recharged by the CSG to its members at the appropriate proportion then they will, subject to all the conditions being met, be exempt. However if such supplies are used as a mechanism to artificially inflate costs to extract a profit from the supplies made by the CSG, for example in the case where the supplier and the CSG are in the same VAT group, then they will fail to meet the ‘exact reimbursement’ condition and will fall to be treated as fully taxable (see CSE4220-4260).