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Social Housing Speed Read – Clarification of the availability of the VAT cost sharing exemption

On 27 August 2019, Revenue and Customs Brief 8 (2019) was published by HMRC. This brief contained the conclusions reached by HMRC in its review of the VAT cost sharing exemption and its availability in the social housing sector following earlier suggestions that it would be removed, putting many established schemes at risk for prudent organisations who had achieved efficiency by their introduction.

The VAT cost sharing exemption allows two or more organisations, who carry out exempt and/or non-business activities, to form a cost sharing group (CSG). The CSG will consequently be treated as a separate taxable entity. As a result, the CSG can make VAT exempt supplies to its members provided that certain conditions are satisfied. This allows smaller organisations to save costs and also to benefit from a similar economies of scale to that of larger organisations. Many Registered Providers had set up entities to provide shared services to their parent organisations, achieving economies of scale and reducing their tax burden.

However, in the European Court case of DNB Banka AS (Case C-326/15) (2017) it was held that the exemption would only apply to CSG members who carry out public interest activities. It was held that banks, insurers, financial services businesses and property businesses would no longer benefit from the exemption. Unfortunately, the court did not specifically address the status of social housing associations. As a result, HMRC announced that social housing associations could continue to benefit from the exemption but that a review of this position would be undertaken.

This review has now taken place and the aforementioned brief sets out the position reached by HMRC. The brief clarifies that the exemption will continue to apply to social housing associations at least for the foreseeable future. HMRC has also stated that the VAT Cost Sharing Exemption Manual will be amended to reflect this position and that social housing associations will be given at least 12 months’ notice of any future changes.

This announcement by HMRC should now provide much needed comfort to social housing associations that their activities are indeed public interest activities. Associations can continue to benefit from the VAT cost sharing exemption and any change to this position should be brought to the attention of associations at least 12 months prior.

If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.


Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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