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HM Revenue and Customs Brief 3/16 - review of VAT grouping provisions following judgments


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Review of VAT grouping provisions following the Larentia + Minerva and Marenave (C-108/14 and C-109/14) and Skandia (C-713) judgments

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 planned approach.

Who should read this brief?

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

Further details can be found in VAT Notice 700/2: group and divisional registration.

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 VAT grouping.

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.

About the Author

© Crown Copyright 2016.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2016-02-23 09:19:22 in Tax Articles

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