This document summarizes a Revenue & Customs Brief issued by HMRC that announces a consultation on reforming the UK's VAT grouping rules. Under current UK law, only corporate bodies can form a VAT group. However, a recent Court of Justice ruling determined this restriction can only be imposed to prevent tax avoidance. As a result, HMRC recognizes UK law is not compliant with the VAT Directive and plans to consult interested parties on proposed changes to allow non-corporate entities to join VAT groups in accordance with EU law. The consultation will begin with business representatives before a formal 12-week written consultation with other stakeholders, with the aim of finalizing new VAT grouping provisions.

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Summary
Under existing UK VAT law, only
corporate bodies are entitled to
form a VAT group.
The Court of Justice ruled last year
in the Larentia and Minerva /
Marenave cases that such a
restriction could only be imposed if
it was appropriate and necessary in
order to prevent abuse, avoidance
or evasion.
HMRC has recognised that the UK
law on VAT groups is, therefore,
not in compliance with the VAT
Directive.
R&C Brief 03/2016 issued on 14
January 2016 announces a wide
ranging consultation which is likely
to lead to a change to the UK's rules
on VAT groups.
14 January 2016
Revenue & Customs Brief 03/16
HMRC has announced that, following the Court of Justice judgments in the cases of
Larentia & Minerva (Case C-108/14), Marenave (Case C-109/14) and Skandia America
Corp (Case C-7/13), it is to launch a consultation with all interested parties in
connection with the UK's VAT Grouping provisions.
Under current UK VAT law, membership of a VAT group is restricted to corporate
entities under common control. The Court of Justice has recently ruled that Member
States may only restrict membership of a VAT group to corporate entities if such a
restriction is appropriate and necessary in order to prevent abuse, avoidance or evasion.
HMRC recognises that current UK law is, therefore, at odds with EU law and that the
UK law will need to be amended in due course.
Under EU law, Member States are entitled to treat two or more businesses established
in that Member State as a single taxable person for VAT purposes provided that they
are closely bound by economic, financial and organisational links. As such, EU law does
not restrict membership of VAT groups only to corporate entities.
Revenue & Customs Brief announces that HMRC is to enter into dialogue initially with
business representative bodies and then, once a framework is established in relation to
the future of VAT groups in the UK, to enter into a written consultation phase with all
other interested parties. The formal consultation period will last for 12 weeks. During
summer/autumn 2016, HMRC will publish a summary of the formal consultation
responses, and use it to finalise the government’s proposals for reform of VAT
grouping provisions.
Comment – Following the CJEU's judgments in the above cases, it was
inevitable that HMRC would need to consider amending the UK's VAT law on
VAT groups. HMRC already has powers to treat non-corporate entities as a
single taxable person but currently, only exercises those powers in cases of
disaggregation.
HMRC to consult on VAT Groups
VAT 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