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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: Distortion of competition: What is the position when a commercial operator supplies a CSG?

Normal VAT rules apply. The ‘distortion of competition’ condition should not affect normal customer/third party supplier arrangements. For example a CSG could, acting as an independent group of persons, freely engage a third party supplier to provide, for example, management or administrative services to the CSG and under normal commercial arrangements be able to decide to continue or not with that relationship. Such services supplied to the CSG would of course not benefit from the exemption but would be subject to the normal VAT rules and any VAT charged would be irrecoverable by the CSG to the extent that it was used for making exempt and/or non-business supplies by the CSG.

However where such charges are split so they are made directly to the individual members of a CSG as well as the CSG as a whole they may be regarded as abusive arrangements.