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VAT exemption for group cost sharing: HMRC guidance

31 August 2012

VAT can be a real cost for organisations which can’t normally recover the VAT they incur, where their own activities are VAT exempt or non-business, for example in education, health and welfare sectors, or for charities, banks, and insurance companies to name a few. So where these organisations are part of a wider group and want to share services such as back office functions, they can often find that VAT has to be charged between them, which then can’t be recovered.

To try and relieve this problem, a new VAT exemption was introduced this summer for services supplied by a cost sharing group to its members, provided they carry on VAT exempt or non-business activities (and subject to meeting various other conditions).

HMRC have now formalised what was previously just draft guidance on this new VAT exemption, which should be recommended reading for anyone looking to benefit from this new VAT exemption.

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