Review of the VAT exemption for cost sharing groups in the social housing sector

HMRC has published Revenue and Customs Brief 8 (2019), which explains its conclusions following a 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.

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


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: [email protected] if you need more information.