Autumn Statement 2016: Changes to VAT Groups

There have been a number of challenges in recent years to the way in which VAT Groups operate in the UK.

One challenge is who can be a member of a VAT group.  The case of Larentia + Minerva and Marenave C-108/14 and C-109/14, which was decided by the Court of Justice of the European Union (CJEU), confirmed that persons corporate or non-corporate could be members of a VAT group.  However, UK legislation only permits bodies corporate to be members of a VAT group (s 43A, VAT Act 1994).

Another challenge relates to the operation of VAT groups in the UK. The ECJ case of Skandia America Corp (USA), filial Sverige C-7/13 caused HMRC to issue four Revenue & Customs Briefs: 37 (2014), 2 (2015), 18 (2015) and 3 (2016).  Usually supplies between different establishments within a VAT group are disregarded for VAT purposes, but this decision found that supplies between a US establishment and a Swedish establishment were recognised for VAT purposes, despite both establishments belonging to the same entity within a VAT group.

The resulting policy now operated by HMRC is unwieldy: UK-established VAT groups which also have establishments outside the UK will recognise supplies with other establishments for VAT purposes if the other establishment is in a member state which requires this.

The Government has announced that it will consult on VAT grouping although no timescale has been given.  It will be interesting to see whether the only change is to the ‘body corporate’ requirement or whether other changes will also be made.

Those parties who wish to join VAT groups or who are already members of VAT groups should review the consultation when it is published and consider how any proposed changes might affect them.