Scope of VAT Grouping

HMRC has published a summary of responses to the consultation on the scope of VAT grouping that it launched in December 2016.

The main focus of the consultation was to consider potential changes to UK VAT grouping following the decisions of the Court of Justice of the European Union (CJEU) in Larentia + Minerva and Marenave (C-108/14 and C-109/14) and Skandia America Corporation (C-7/13).The consultation examined options around eligibility requirements for VAT group registration and the impact of policy changes following the CJEU decision in Skandia. It also sought views on the interactions between VAT grouping and cost sharing provisions.

It is clear from the responses how valuable UK VAT grouping is to business. HMRC will continue to look at the scope of VAT grouping, the issues that have been raised and the impact of any potential changes.

HMRC believes that there will always need to be financial, economic and organisational links between members of a VAT group during the entire time that it exists. Further detailed work will be required to explore the pros and cons of alternative tests, which might include further consultation. Any expansion of grouping would need to be supported by robust anti-avoidance measures, which will be considered alongside any VAT grouping changes and aim to avoid further complexity for taxpayers.

HMRC appreciates that businesses will require certainty on any future changes and will consider the outcomes of the UK’s EU exit negotiations to ensure that businesses are not required to make a series of changes. It has also acknowledged comments on the clarity of guidance on VAT group eligibility for certain types of partnerships, and intends to clarify the current approach through improved guidance and a policy paper.

In the meantime, and in response to concerns raised during the consultation process, HMRC will clarify its current approach to certain types of partnerships through a policy paper and clearer guidance for business.

It has been accepted that VAT grouping and the Cost Sharing Exemption (CSE) should be dealt with separately, there being no immediate plans to further review the interaction between VAT grouping and the CSE.

ICAEW responded to the consultation in ICAEW tax representation 27/17.