Review of VAT grouping provisions following the Larentia +
Minerva and Marenave (C-108/14 and C-109/14) and Skandia (C-713)
Purpose of this Brief
To inform interested parties of the UK government’s decision
to launch a consultation on VAT grouping provisions and highlight the
Who should read this
UK VAT-registered businesses who are members of a VAT group
and other businesses who are interested in applying for VAT grouping.
Accountants, consultants and others who provide VAT advice to
the businesses referred to above.
Article 11 of the Principal VAT Directive allows member states
to treat two or more businesses established in the territory of that
member state as a single taxable person (often called a VAT group) if
the businesses have close economic, financial and organisational links.
UK VAT grouping legislation (VAT Act 1994 s43-43D) currently
allows two or more companies or limited liability partnerships - known
as ‘bodies corporate’ - to register as a VAT group if:
each body is established in the UK
they are under common control, for example a parent company
and its subsidiaries
The Larentia + Minerva and Marenave judgment was released in
July 2015. The Court of Justice of the European Union found that member
states may only restrict VAT grouping to legal persons, where those
restrictions are appropriate and necessary in order to prevent, abuse,
avoidance or evasion.
As a result of this judgment the government expects to make
changes to UK law and VAT grouping provisions.
These changes are likely to include:
extending VAT grouping to non-corporate bodies
identifying new rules to determine ‘close economic,
financial and organisational’ links for corporate and non-corporate
bodies, replacing the current “control” test based on a company law
definition of a subsidiary
The government recognises the importance of engaging fully
with individuals, practitioners, businesses and other organisations in
the development of tax policy. The consultation process will help HM
Revenue and Customs (HMRC)
gather views on policy design, impact of change and alternative
approaches to develop new legislation.
We will also use this opportunity to find out what businesses
and their representatives think about other grouping related matters,
particularly those where the provisions differ across EU member states,
as identified in the Skandia case. This information will help inform
future discussions with the European Commission and other member states.
What happens next?
During January and February 2016 HMRC will meet
with business representative bodies to explore and develop new ideas on
During February and March 2016 HMRC will use
the feedback to develop a series of policy options. These will form
part of the formal consultation which will begin in spring 2016.
During spring 2016, HMRC
will launch a formal written consultation. This will provide anyone who
has an interest in VAT grouping with an opportunity to reflect on the
policy options and proposals developed during the informal dialogue. We
will ask for feedback on the impact and workability of these proposals
to help us determine the final shape of VAT grouping provisions.
The formal consultation period will last for 12 weeks.
During summer/autumn 2016, we will publish a summary of the
formal consultation responses, and use it to finalise the government’s
proposals for reform of VAT grouping provisions.