VAT groups and VAT refunds - who is entitled to the proceeds?

1. © 2016 Grant Thornton UK LLP. All rights reserved.
‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms
provide assurance, tax and advisory services to their clients and/or refers to one or
more member firms, as the context requires.
Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL).
GTIL and the member firms are not a worldwide partnership. GTIL and each member
firm is a separate legal entity. Services are delivered by the member firms. GTIL does
not provide services to clients. GTIL and its member firms are not agents of, and do not
obligate, one another and are not liable for one another’s acts or omissions.
This publication has been prepared only as a guide. No responsibility can be accepted
by us for loss occasioned to any person acting or refraining from acting as a result of
any material in this publication.
grant-thornton.co.uk
GRT100456
Summary
The Upper Tribunal was asked to
determine the complex question of
who is entitled to a VAT refund. Is
it the company that made the
supplies in question or is it the
representative member of the VAT
group at the time the supplies were
made?
The First-tier Tax Tribunal (FTT)
had come to contrasting decisions
but, on appeal, the Upper Tribunal
has concluded that it is only the
representative member of a VAT
group that is entitled to a refund of
VAT overpaid.
The UK's VAT grouping provisions
give effect to the EU's concept of a
single taxable person and respects
the principle of fiscal neutrality.
24 October 2016
Upper Tribunal
The issue to be resolved in these cases is fairly simple. When a company is a member of a
UK VAT group, which entity is entitled to any VAT refund in a situation where it is later
discovered that VAT has been overpaid. Is it the entity that actually made the supplies in
question or, is it the representative member of the VAT group at the time the supplies were
made? The First-tier Tax Tribunal (FTT) had issued contrasting decisions in separate
cases. The first involved BMW / MG Rover – where the FTT found that the UK's VAT
group rules meant that the company making the supplies was entitled to the refund. The
second case involved Lloyds Bank / Standard Chartered – where the FTT found that the
reverse was true (ie that only the representative member was entitled to claim the refund).
Following a long line of case precedent culminating most recently with the Court of Justice
judgment in the case of Skandia America and the Court of Session judgment in Taylor
Clark Leisure, the Upper Tribunal has concluded that the UK's VAT group rules contained
in section 43 of the VAT Act 1994 give effect to Article 4 of the 6th VAT Directive. Under
those provisions, individual entities lose their status as taxable persons - that status is
conferred upon the collection of entities that form the VAT group. As such, whilst a VAT
group is made up of individual companies, it is treated as a single taxable person for VAT
purposes. Any VAT overpaid as a result of the trading activities of one of the group's
constituent entities must, therefore accrue to the VAT group (and not to the single entity
which made the supplies). The UK implements these provisions by requiring the VAT
group to appoint a representative member and imposes joint and several liability on the
group as a whole. The Upper Tribunal found nothing wrong with the UK's implementation
and, in its detailed judgment, concluded that the principle of fiscal neutrality was not
offended. It is the representative member of the VAT group at the time that supplies giving
rise to a VAT refund are made that is entitled to any refund of the VAT overpaid.
Comment – Refunds of VAT to former members of a VAT group is an emotive
topic. One can understand the (financial) reasons for the competing arguments.
This Upper Tribunal judgment makes it clear that, whilst VAT groups offer many
advantages, the consequences of a VAT group can also lead to subsequent issues.
Businesses need to give careful consideration to such issues before agreeing to
form a VAT group. In particular, businesses need to consider how any future VAT
claims will be distributed when any refund is received by the representative
member.
VAT refunds & VAT Groups – Upper
Tribunal judgment
Case Alert
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556