HMRC have issued the delayed consultation on VAT grouping following a number of CJEU Judgments.
HMRC have issued the delayed consultation on VAT grouping following a number of CJEU Judgments. The consultation looks at UK grouping eligibility, the impact of HMRC’s response to Skandia, the interaction between VAT grouping and the cost sharing exemption and the potential impact of any future changes to the UK rules. The UK’s current control test for VAT grouping eligibility is based on a Companies Act definition of parent and subsidiary and is very much a financial link. However, in the Directive, grouping requires financial economic and organisational links. The control test effectively assumes the other two links exist but as the same conditions must apply to all entities wishing to be grouped, that test will clearly need amending if the scope of UK grouping expands.
The Larentia and Minerva Court of Justice of the European Union (CJEU) judgment made it clear that a Member State cannot apply a blanket limitation of VAT grouping to just bodies corporate, as the UK has done. The consultation question on this is however, worded quite interestingly as it asks what entities should be excluded from VAT grouping and why.
The consultation does not suggest that HMRC have applied Skandia too narrowly. The UK only recognises the overseas establishment in a VAT group is a separate taxable person from the UK establishment in very limited circumstances, but does ask about how the changes that were introduced by HMRC as a result of Skandia affected business. The consultation also asks whether there are other CJEU decisions that have had an impact on VAT grouping.
Earlier HMRC had looked at the interaction between VAT grouping and the cost sharing exemption but now seem to recognise that they are very different and that one should not impact on the other.
The final part of the consultation is the impact assessment where HMRC are seeking information about the current financial advantages of grouping and the impact (both financial and operational) on businesses, especially small ones, of any suggested changes to grouping, and any suggestions of how to alleviate any negative impact.
The response deadline is 27 February 2017.
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