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HMRC internal manual

VAT Cost Sharing Exemption Manual

How the conditions are to be interpreted: CSGs and VAT groups: How is the 85% ‘directly necessary’ test applied to a VAT group member?

The ‘directly necessary’ test is applied in exactly the same way as it is by any other CSG member but only to the third party activities of the VAT group member that is the CSG member and not the aggregated activity of the VAT group as a whole (see CSE4120).