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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: CSGs and VAT Groups: Can a VAT group Registration be a member of a CSG?

VAT grouping is a mechanism for accounting for tax and associated liabilities. Supplies of goods and services are made to individual members of the VAT group and the liability of those services depends on the status of the individual VAT group member, that member is able to join a CSG in its own right so long as its individual activities involve exempt or non-business activity.

Supplies received by a VAT group member from the CSG will be considered to be supplied to the representative member in accordance with the VAT Group Registration mechanism under the provisions s.43(1) of the VAT Act 1994).

However, s43(1AA) of the VAT Act 1994 allows the VAT group’s representative member to be treated as a CSG member in relation to supplies which are treated as made to it but that are in reality made to the CSG member. Therefore it is the VAT group’s member who is also a CSG member that must meet all the relevant cost share conditions and tests and be making the relevant exempt and/or non-business supplies to third parties, albeit that all such supplies are accounted for (under the VAT grouping mechanism) by the representative VAT group member. Note that supplies to other entities in the VAT group will not fulfil cost share conditions and tests, that is, they are neither exempt nor non-business, such supplies are disregarded for VAT purposes.