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Revenue and Customs Brief 8 (2019) - review of the VAT exemption for cost sharing in social housing


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Published 27 August 2019

Purpose of this brief

This brief explains HMRC’s conclusions following its review of the application of the cost share exemption (CSE) to the social housing sector. It announces the continued application of the CSE to cost sharing groups (CSGs) implemented by social housing associations.

Who should read this brief

This brief should be read by UK housing associations who have implemented a CSG, or are thinking of implementing a CSG, and have relied on HMRC’s published guidance in the VAT Cost Sharing Exemption Manual.

Accountants, consultants and others who provide VAT advice to the businesses referred to above should also read this brief.

Definition of Social Housing Association

This brief applies to housing associations defined in section one of the Housing Associations Act 1985 and other registered social landlords who provide social housing for the benefit of the community, on a not-for-profit basis.

It also applies to the equivalent bodies in Scotland and Northern Ireland. The CSE applies to CSGs established by social housing associations that meet the conditions described in the VAT Cost Sharing Manual (CSE 1250) whether or not the CSGs are VAT grouped with the housing association or VAT registered separately.

The CSG is not itself required to be a housing association and normally will not be such a body.

The cost share exemption does not apply to arrangements entered into by private landlords.


Revenue and Customs Briefs (3) 2018 and (10) 2018 detailed various changes that have already been incorporated in the VAT Cost Sharing Exemption Manual.

In that manual (CSE 1060), HMRC announced that it would be carrying out a review of the application to social housing organisations.

The Court of Justice in DNB Banka AS (Case C-326/15) concluded that the CSE only applies to independent groups of persons whose members carry on an activity in the public interest.

The court was concerned specifically with financial services and did not consider the treatment of social housing associations which make rental supplies which are also in the public interest.

In the absence of a court judgement relating specifically to them, HMRC considers that the existing arrangements should continue for social housing associations.

The CSE allows persons who carry on activities covered by certain exemptions to join together to form a CSG so they can acquire services and recharge their members for their use of the services at cost without incurring any additional non-recoverable VAT.

The circumstances where the CSE applies are fully explained in the VAT Cost Sharing Exemption Manual CSE 1010.

Conditions for application of the CSE to CSGs in the social housing sector

The conditions set out in the VAT Cost Sharing Exemption manual (CSE 1250) apply equally to the social housing sector.

Further to those conditions:

  • there must be no uplift of internal or external costs (for example, resulting in a margin or profit on actual costs being recharged) within the CSG
  • there must be no uplift of the costs being shared within any VAT group including either, the CSG itself, and or the members of the CSG
  • there must be no uplift of costs by a VAT group member supplying a CSG in the same VAT group
  • there must be more than one member of the CSG, the count does not include members that are in a VAT group either with the CSG, or with other members
  • the CSG only applies to providers of social housing (registered social landlords) and not to private housing providers

Next steps and timing of any further changes

HMRC will be amending the VAT Cost Sharing Exemption Manual to incorporate these changes which have immediate effect.

Housing associations and their corporate groups can continue to use the cost share arrangements subject to the above conditions. If further changes are required, HMRC intends to announce them giving at least 12 months’ notice. Any such changes would not have retrospective effect.

Action Required

CSGs should consider the impact of the conditions on their existing arrangements and amend them if necessary to comply with all the conditions.

Contact HMRC at the HA mailbox: if you need more information.

About the Author

Crown Copyright 2019.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2019-08-27 22:00:00 in Tax Articles

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