On 22 March 2018, HMRC published Revenue and Customs Brief 3 (2018)4 in light of recent ECJ decisions5 on the VAT cost sharing exemption (CSE). Whilst expected, given the conclusions reached in those decisions, the revised HMRC policy will be disappointing for insurers and other financial services groups.
The CSE, broadly, provides an exemption for VAT on services provided within groups whose members make exempt (or non-business) supplies provided:
• the intra-group supplies are “directly necessary” to enable the group members to make such exempt (or non-business) supplies
• only each member’s exact share of the cost of the intra-group supplies are recovered, and
• exempting the intra-group supply would not lead to distortion of competition.
From 22 March 2018 (but subject to a transitional period), the CSE will only be available to groups engaged in a limited number of “public interest” activities. These will include education, health and welfare and charitable fundraising but will exclude from the scope of the CSE banks, insurance and other financial services.
Additionally, the CSE will only be open to members located in the UK.
Groups that have applied HMRC’s previously published guidance will be able to continue to do so until 31 May 2018 unless tax avoidance is involved or there is likely to be a distortion of completion.
The Brief can be viewed here.